JAKARTA: Indonesia's central bank on Thursday stepped up efforts to help lift growth by cutting interest rates for a third straight month, while also relaxing some lending rules in a bid to further stimulate Southeast Asia's biggest economy.
In line with the views of 13 of 21 economists in a Reuters poll, Bank Indonesia (BI) reduced the 7-day reverse repurchase rate by 25 basis points (bps) to 5.25%, bringing the total reduction this year to 75 bps.
BI moved hours after the Federal Reserve cut US rates again to help sustain a record-long economic expansion but unexpectedly signalled a higher bar to further reductions in borrowing cost — which may impact BI's ability to cut rates in future.
Indonesia's series of monetary stimulus "will increase investment, consumption, economic growth, and make everybody happy," BI governor Perry Warjiyo told reporters.
"We are anticipating a prolonged impact from the trade war and we are thankful that Indonesia's economic growth momentum was maintained," he said, giving a forecast of 5.1% for GDP growth this year and 5.3% next year.
BI trimmed its key rate in its July and August meetings, and now has reversed 75 bps of the 175 bps in rate hikes done in 2018 to support the rupiah and counter capital outflows related to the US monetary tightening cycle and the US-China trade war.
When asked about possible further easing, Warjiyo said an "accommodative policy mix" will be pursued in line with low inflation, external stability and the need to support GDP expansion.
Officials at the central bank and the government have expressed concern over a global economic slowdown hitting domestic activity and said they would implement policies aimed at countering the trend.
Among rules BI said it would relax this year include a change in the definition of deposits in its "macroprudential intermediation ratio", its preferred way of regulating banks' loan-to-deposit ratio, Warjiyo said.
The change will add 128 trillion rupiah ($9.10 billion) of funds to the calculation for deposits, he said, which would give more room for lending.
BI will also relax rules on loan-to-value ratios for property and vehicle loans, allowing a reduction in downpayments of up to 10% in typical cases, and an additional 5 percentage points for low-emission vehicles.
In a move it said would strengthen policy transmission, BI would gradually from Oct 4 conduct reverse repurchase of 12-month government bonds in its monetary operations to replace its issuance of 12-month notes.
Officials expect loan growth to accelerate to 11%-13% next year from 10-12% this year.
Meanwhile, inflation is not a key concern, with BI officials predicting it to stay within its 2.5%-4.5% target range this year and 2%-4% next year. The current account deficit was also seen as manageable.
"The slowing economy and subdued inflation mean BI would certainly like to cut rates again in the coming months. However, the outlook for monetary policy will largely be determined by the performance of the currency," said Gareth Leather, senior Asia economist at Capital Economics.
The rupiah has been under pressure this week due to a spike in global oil prices, but it is still up more than 2% this year. The currency barely moved after the rates decision and was trading at 14,065 to the dollar in afternoon trading.