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Indonesia cuts rates to counter tepid global growth

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Jakarta, capital of Indonesia, Aug. 2, 2019. (Xinhua/Agung Kuncahya B.)

(AFP) – Indonesia’s central bank cut interest rates for the fourth month in a row yesterday as Southeast Asia’s biggest economy looks to counter slowing global growth.

Bank Indonesia (BI) lowered its key lending rate by 25 basis points to 5.0 percent, prompting speculation that more cuts could be in store as central banks around the world adopt softer monetary policies.

“This policy is consistent with low inflation expectations… and is a pre-emptive measure to boost momentum at home amid a global economic slowdown,” bank governor Perry Warjiyo said.

Yesterday, Indonesia’s main stock index headed for a tenth straight rise in what would be the longest run of gains since 1995, according to Bloomberg, on hopes for business-friendly reforms as President Joko Widodo kicked off a second term.

Mr Widodo this week chose former World Bank managing director Sri Mulyani Indrawati to serve another term as finance minister, with Indonesia facing weaker prices for key commodities like coal and palm oil as the global economy falters and demand dries up.

Economic growth eased to 5.05 percent in April-June – the slowest quarterly expansion in two years – as exports and investment slipped.

That has thrown up a challenge for Mr Widodo, who was re-elected this year largely on his promise to energise the economy with a roads-to-airports infrastructure blitz and a pledge to cut red tape.

“The slowing economy and subdued inflation mean BI would certainly like to cut rates again in the coming months,” research house Capital Economics said after the rate cut.

“However, the timing of further rate cuts will be determined by the performance of the rupiah.”

Indonesia’s currency was at risk of weakening against the US dollar as investors remain cautious because of a stumbling world economy and the US-China trade war, it added.

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