Bank Indonesia Signals Another Rate Cut Could Be on the Table

(Bloomberg) -- Indonesia’s central bank has signaled a return to the easing bias that dominated its rates agenda last year.

Bank Indonesia was Asia’s biggest rate cutter in 2016, easing policy six times until it hit the pause button late in the year. Now, with price pressures fading again, the bank’s governor Agus Martowardojo has said policymakers aren’t closing the door on further action.

"Bank Indonesia sees that inflation continues to be manageable, and provided conditions remain good with supporting data, we aren’t closed to the possibility of easing," Martowardojo told reporters in Jakarta on the steps of the central bank’s mosque on Friday.

"Bank Indonesia still sees room to ease to provide support for economic growth providing inflation remains manageable and the exchange rate continues to be stable, we will consider as we head into the upcoming meeting of board of governors if the economic condition remains good and the data is supportive," he said.

The next decision is scheduled for Aug. 22.

"Given the fact that the Fed has signaled it’s not going to hike interest rates probably until December at the earliest, the rupiah has held up fairly well, the economy is certainly showing no signs of recovery, it makes sense that the next move is a cut," said Gareth Leather, senior Asia economist at Capital Economics Ltd. in London. "It’s just a question of timing."

Pressure Eases

Indonesia’s inflation eased to 3.88 percent in July from a year earlier. The central bank has an inflation target of 3-5 percent.

Despite the aggressive easing action last year, Indonesia’s economy has failed to fire, with growth remaining stuck around 5 percent. President Joko Widodo had vowed to achieve growth of 7 percent when he came into office almost three years ago.

Martowardojo said Friday that policymakers expect to see that there was some pressure on growth during the second quarter. Gross domestic product data for the three months through June will be announced Monday. A Bloomberg survey of 22 economists forecasts growth of 5.1 percent.

Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd. in Singapore, said growth was likely to be “a tad lower than the lower limit” of Bank Indonesia’s forecast for 2017 of 5.2 percent to 5.4 percent. “With inflation likely already peaked, sluggish growth is now the focus," he said.