By Aloysius Unditu and Arijit Ghosh
Dec. 4 (Bloomberg) -- Indonesia’s central bank unexpectedly lowered interest rates for the first time in a year to shield Southeast Asia’s biggest economy from the global recession.
Governor Boediono and his seven colleagues reduced the benchmark rate to 9.25 percent from 9.5 percent, Bank Indonesia said in a statement in Jakarta today. Just six of 23 economists surveyed by Bloomberg News had forecast a cut.
Indonesia joins other Asian central banks in reducing borrowing costs to help boost growth, after the government cut its economic-growth forecast for 2009 to a seven-year low of 4.5 percent. The Bank of Thailand yesterday slashed its key policy rate by the most ever.
““Today’s rate cut tells you that growth is the overarching concern right now,” said Lim Su Sian, an economist at DBS Group Holdings Ltd. in Singapore, who forecasts a quarter-point reduction every month till March. “Eventually the global slowdown must have some kind of impact on the economy and Bank Indonesia is probably aware of it.”
Indonesia’s government on Dec. 2 said it expects the $433 billion economy to expand 4.5 percent next year, the slowest pace since 2002, as a worldwide slump saps demand for exports. The International Monetary Fund predicts the euro-region economy will contract 0.5 percent in 2009. The U.S. slipped into recession in December 2007.
Financial Crisis
“The decision to cut the rate was taken after evaluating financial and economic prospects, both in the domestic and global market,” Bank Indonesia said today. “The impact of the financial crisis on the global economy is getting real.”
Still, the rupiah has declined 23.5 percent in the past three months, making it the second-worst performing among Asia’s 10 most-traded currencies outside Japan.
The rupiah fell 1.7 percent to 12,150 against the dollar at 2:11 p.m., the biggest drop in more than a week, in Jakarta. The benchmark stock index gained 0.9 percent.
“The high policy rate seems no longer effective for defending the rupiah,” said Alexander Sugandi, an economist at Standard Chartered Plc in Jakarta. “Bank Indonesia wants to signal to the market that it is acting preemptively to prevent growth from slowing sharply in 2009.”
Indonesia’s economy will expand at a slower pace in the fourth quarter than in the preceding three months, said central bank Deputy Governor Hartadi Sarwono. The full impact of the global crisis will be felt in 2009, he said. The economy grew 6.1 per cent in the third quarter from a year earlier.
More Reductions
New Zealand’s central bank today reduced its benchmark rate by a record 1.5 percentage points to 5 percent and signaled more reductions. The Reserve Bank of Australia on Dec. 2 lowered its key rate by one percentage point, extending the biggest round of reductions since a recession in 1991.
Indonesia’s consumer prices increased 11.7 percent in November from a year earlier, after gaining 11.8 percent in October. That’s the highest in Southeast Asia outside Vietnam. Wholesale-price inflation slowed to 27.5 percent in September, when money-supply growth accelerated to 16.9 percent.
Inflation may slow further after the government cut gasoline prices by 8.3 percent on Dec. 1 and President Susilo Bambang Yudhoyono said subsidized diesel prices may be reduced in the “following month.”
The central bank said it expects inflation to be in the lower end of its 6.5 percent to 7.5 percent range next year.
Bank Indonesia also cut its overnight repurchase rate to 9.75 percent, while the deposit rate was raised to 8.75 percent, the central bank said.
To contact the reporters on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net; Aloysius Unditu in Jakarta at aunditu@bloomberg.net
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