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Indonesia's rate cut shows comfort with rupiah outlook

Bloomberg Published on Thu, Aug 24, 2017 / 8:33 AM GMT+8

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(Aug 24): Indonesia’s central bank surprised most economists on Tuesday by lowering interest rates, reflecting its relative comfort with the currency and inflation outlook.

The benchmark rate was cut by a quarter point to 4.5%, with all but six of the 28 economists surveyed by Bloomberg predicting it would stay on hold. Bank Indonesia reduced borrowing costs six times last year, making it Asia’s biggest rate cutter.

Governor Agus Martowardojo and his board had put policy easing on hold until now, concerned that tightening US monetary policy may spur outflows from emerging markets and undermine the currency. With the Federal Reserve sticking to gradual rate hikes in the face of subdued inflation, the rupiah has been relatively stable this year, gaining about 1% against the dollar.