Indonesia’s central bank unexpectedly cut its key interest rate by 25 basis points on Tuesday (Feb 17) to spur growth as inflation slowed in Southeast Asia’s biggest economy.
It was the first time in three years that the bank had moved to trim the rate, to 7.50 per cent from 7.75 per cent.
The cut effectively cancelled out the quarter-point rate increase in late November. Bank Indonesia said that increase was aimed at stemming inflation, due to a more than 30 per cent increase in subsidised fuel prices.
“The policy is taken because Bank Indonesia is confident that inflation will remain under control,” the central bank said in a statement.
In January, Indonesia’s annual inflation rate was 6.96 per cent. The central bank sees inflation easing to 6.3 per cent in February, and then reach the lower end of its inflation target of 3 to 5 per cent at the end of the year.
Economists said the rate cut was likely made to spur growth, which fell to 5.0 per cent in 2014, the lowest in five years.
“The imports volume was surprisingly low in January, and this means there’s much lower economic activity at the start of this year, and this is probably the concern,” said Bank Central Asia’s chief economist, David Sumual.
New President Joko Widodo has set the growth target for this year at 5.7 per cent.
Source : Channel News Asia | February 17, 2015