Indonesia Lowers Key Rate for Seventh Straight Month
Indonesia’s central bank cut its benchmark interest rate for a seventh straight month to help bolster Southeast Asia’s fastest-growing economy.
Bank Indonesia reduced its reference rate by a quarter- point to 7 percent, the lowest level since the benchmark was introduced in 2005, according to a statement in Jakarta today. The cut was predicted by 18 of 19 economists surveyed by Bloomberg News.
Policy makers across Asia have slashed interest rates and increased spending to counter the worst global recession since the Great Depression. Bank Indonesia has room to continue to reduce borrowing costs as inflation has slowed to a 23-month low and its benchmark rate remains the highest in East Asia.
“It’s defensible for Bank Indonesia to further cut its rate,” said Kenny Soejatman, director of equity investment at PT Mandiri Manajemen Investasi, which manages about $982 million. “To say that this is the last one would be too strong. We foresee a few more, though beyond this the probability is obviously becoming smaller.”
Lower interest rates may help economic growth in Indonesia remain above other nations in Southeast Asia. The $433 billion economy, which has been less affected than its neighbors by the global slump as it isn’t as reliant on exports, expanded 4.4 percent in the first quarter from a year earlier.
Malaysia, Thailand
Malaysia’s economy shrank 6.2 percent in the three months to March 31 from a year earlier, its first contraction since 2001. Thailand’s gross domestic product fell 7.1 percent in the same period, pushing the nation into its first recession since the Asian financial crisis.
Indonesia’s economy may expand between 3 percent and 4 percent this year, the central bank said in today’s statement Internet Payday loans. Growth next year may range from 4 percent to 5 percent, senior deputy governor Miranda Goeltom said June 1.
Economic growth may benefit in the second half of 2009 and in 2010 from an improvement in consumer sentiment. An index of consumer confidence from the Danareksa Research Institute jumped to a 33-month high of 89.5 in May from 84.1 in April, according to a statement in Jakarta today.
Investors are also more optimistic about Indonesia’s economic prospects after President Susilo Bambang Yudhoyono’s Democrat Party won the most seats in April parliamentary elections, bolstering his bid for re-election in July.
‘Challenging Backdrop’
Still, Indonesian GDP growth may be tempered if the worldwide economic downturn continues to weaken the nation’s overseas sales. Exports fell 22.9 percent in April from a year earlier, the sixth straight month of declines.
“This downward trend in Indonesian export growth is unlikely to reverse any time soon,” said Yip Yee Lan, an economist at BNP Paribas SA in Singapore.
April’s 44.5 percent drop in imports from a year earlier also suggests “sagging” domestic demand, Yip said.
“Indicators of domestic demand activity have not yet seen any clear signs of stabilization,” said Johanna Chua, head of Asia-Pacific economics research at Citigroup Inc. in Hong Kong. This “will likely continue to provide a challenging backdrop for growth this year.”