Indonesia’s Warjiyo Sees Low-Rate Environment Lasting Long Time

(Bloomberg) --

The global slowdown and trade war have created an environment in which “low interest rates for longer” is the new normal, Bank Indonesia Governor Perry Warjiyo said.

The U.S.-China trade war “isn’t helping anybody” and only serves as a reminder that “if you prolong the game of thrones, the kingdom will fall apart,” Warjiyo told a conference in Jakarta on Tuesday, referring to the medieval fantasy TV series. “Many central banks have become more dovish. Lower interest rates for longer, this is the tagline we now know.”

While Southeast Asia’s biggest economy has been hovering around the 5% growth level for several years, policy makers have become increasingly worried about spillover effects from the trade war. Bank Indonesia, which cut its key rate for a fourth consecutive month last week, now expects the economy to grow 5.05% in 2019 before accelerating toward 5.3% in 2020.

Key Points:

• “Starting this year, all of our instruments are for growth,” Warjiyo said
• Bank Indonesia had said at its Oct. 24 rate meeting that gross domestic product growth was expected below the midpoint of the 5%-5.4% forecast range this year, but now has a “more precise” forecast of 5.05% growth
• Global growth is expected to be 3% in 2019 and 3.1% in 2020, but would be slower if the U.S.-China trade war continues, Warjiyo said
• “We are seeing a more pessimistic view,” Warjiyo said, adding that central banks must utilize instruments other than interest rates to support stability and economic growth
• Indonesia should focus on new sources of growth, such as development of small and medium enterprises, digital economy and tourism
• Inflation seen below 3.5% in 2019 and 2%-4% in 2020

To contact the reporters on this story: Viriya Singgih in Jakarta at vsinggih@bloomberg.net;Karlis Salna in Jakarta at ksalna@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold

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