JAKARTA: Indonesia’s central bank on Tuesday cut its benchmark policy rate for the first time since October, unexpectedly pulling the trigger in a bid to boost sluggish lending and growth in Southeast Asia’s biggest economy.

In another effort to stoke lending and consumption, Bank Indonesia (BI) also said it would change downpayments on automotive and home loans and review bank liquidity rules.

“The theme of this monetary policy meeting was to lower the benchmark policy rate due to stability and to support economic recovery,” BI Governor Agus Marto­wardojo told reporters.

Martowardojo said external risks, including those involving policy of the US Federal Reserve, had been reduced. BI cut the 7-day reverse repurchase rate to 4.50pc and lowered two other main policy rates.

Indonesia becomes the second major Asian economy to cut its policy rate this year after India on Aug 2.

In a Reuters poll, 19 out of 20 economists forecast that BI would hold the key rate at 4.75pc out of concern changes in other countries’ monetary policies could hurt the rupiah .

AN OPPORTUNITY TAKEN: “Clearly, BI made use of the opportunity to cut rates: inflation is slower than expected, the rupiah staying relatively stable and external risks seem to be manageable,” said Gundy Cahyadi, a DBS economist in Singapore.

The rupiah this year has been relatively stable and has strengthened 1pc against the dollar - significantly less than most Asian currencies have. Indonesia’s capital and bond markets have had net inflows.

BI said it expects the rupiah to remain stable and rupiah-denominated assets to continue to be attractive.

“There is some risk that BI may follow through with another cut in October, but for now, we think BI may leave rates steady at 4.50pc till next year,” said Cahyadi.

Twice after Indonesia this month announced that second quarter growth was basically unchanged from January-March, Marto­wardojo flagged the possibility of monetary easing.

The last benchmark cut was in October, after which BI repeatedly said its policy stance was ‘neutral’ as it watched global changes, including plans by Fed to hike US rates and reduce its balance sheet.

WEAK LOAN GROWTH: June’s annual loan growth of 7.7pc was the weakest in eight months. After Tues­day’s cut, “rates in other instruments would go down. The structure of monetary operations interest rates would go down. This will force banks to use their available liquidity to extend it for lending,” BI Deputy Governor Perry Warjiyo said.

Published in Dawn, August 23rd, 2017