Indonesian central bank surprises with rate cut
In a surprise move, the Indonesian central bank yesterday cut its policy rate by 25 basis points to 5.75 per cent from 6.00 per cent.
Bank Indonesia (BI) also lowered its growth corridor by 25 basis points, respectively, to 6.75 per cent and 3.75 per cent.
According to the ANZ economic research team, the move was a surprise to the markets, with the majority of analysts, expecting BI to remain on hold after aggressively cutting rates by 75 basis points in the fourth quarter of 2011.
“It appears the rate cut was mainly to keep growth from falling toward (or below) the government’s 2012 target range of 6.3 to 6.7 per cent,” ANZ said in a note to clients.
“The shift in focus on supporting growth over restraining long-term inflation is crucial, as it signals either BI’s deep scepticism about global demand conditions or growing confidence about its policy tool kit and lack of concern about core price impacts from impending fuel and power tariff adjustments.”
It is ANZ’s view that view, with strong domestic demand driven growth momentum, BI has forgone the option to be more conservative.
“This is because the risk to long-term price stability could now start to exceed the near-term gains in GDP growth,” it noted.
This is the second instance where the BI has first asymmetrically adjusted its policy corridor (in-between meetings) and then cut its reference rate, which according to ANZ is heightening the perception of unpredictability of policy objectives.
“In view of Indonesia’s strong growth performance and, in our view, rising long-term inflation risks, we expect BI ought to opt for a prolonged rate hold for the remainder of the year.”
- Categories
- Asian Markets
- Tags:
- Bank Indonesia
- Author:
- AB+F Online, mdavis@financialpublications.com.au
- Article Posted:
- February 10, 2012
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