Bank Indonesia eases rate by 25bps

Two more rate cuts may be on the horizon.

Indonesia’s central bank has slashed its rate by 25bps as its local growth prospects turned bleaker amidst ongoing global disruptions partly caused by the coronavirus outbreak.

Bank Indonesia (BI) shaved down Indonesia’s growth forecast for 2020 to 4.2%-4.6% on 19 March, down from 5-5.4% a month ago. The bank also revised down its global growth expectation for 2020 to 2.5%.

This is a sharp reversal to the upbeat picture of global economic recovery the regulator painted just two months ago in an official statement, when it expected projects local growth to come at as much as 5.5%, noted OCBC Treasury Research analyst Wellian Wiranto.

“Indeed, it seems that BI had actually contemplated a larger cut of up to 50bps today, given the space given by Fed cuts and tamer domestic inflation, but wisely opted to be more cautious due to the global risk-off environment,” Wiranto said in a report.

Wiranto stated that two more rate cuts are likely, with the terminal rate now expected to fall at 4%.

Along with the 25bps rate cut BI has also announced a seven-step host of measures that include signaling further bond purchases and bolstering FX liquidity.