Despite the issue of the current account deficit, the central bank has decided to cut its benchmark interest rate in an effort to drive the domestic economy. Bank Indonesia has hinted at the possibility of cutting the interest rate.
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Despite the issue of the current account deficit, the central bank has decided to cut its benchmark interest rate in an effort to drive the domestic economy.
Bank Indonesia (BI) has hinted at the possibility of cutting the interest rate. In a recent statement, the central bank said it was open to taking an accommodative monetary policy in line with the low inflation and efforts to boost the domestic economy.
The central bank would take the measure while taking into account a number of developments, such as in the global financial condition and the stability of the domestic economy. The Financial Services Authority (OJK) has also said that it was the right time to lower the benchmark interest rate.
The global economic slowdown and the ensuing downward trend in interest rates in many countries were why it the time was ripe to cut the benchmark rate.
Earlier, the International Monetary Fund (IMF) warned of a possible slowing in global economic growth as a result of the escalating trade war, worsening debt problems in developed countries and rising geopolitical tensions.
Several G-20 leaders have also warned that the potential was rising for the global economic condition to worsen into a global economic crisis due to the escalating trade war.
Japan, China, Europe, Australia, India, Malaysia and the Philippines are some of the countries that have lowered their benchmark interest rate to maintain domestic growth. Some of these countries also have a current account deficit that is even worse than Indonesia. The United States Federal Reserve (the Fed) also signaled a reduction in interest rates. The US economic slowdown and low inflation have also prompted the Fed to shift to a more dovish policy.
For Indonesia, it is an opportune time to lower the interest rate not only because of low inflation and the declining pressures on the rupiah exchange rate, but also because of improving market confidence as a result of Standard and Poor\'s upgrading the country’s debt rating from BBB- to BBB.
Cutting the benchmark interest rate is vital to providing wider space for businesses to grow and spur domestic growth. The problem is determining when is the best time to cut rates. Some people believe that BI should not be hasty and should instead tackle the current account deficit.
The key is striking a balance between economic stability and growth. Amidst the uncertain global condition, the interest rate policy is part of the monetary measures for anticipating and maintaining economic resilience against external pressures.
The interest rate is also connected to efforts to maintain Indonesia\'s attractiveness to investors, as well as to fiscal burdens like debt payments.
As President Joko Widodo has said, we must take advantage of the trade war and turn the global uncertainties into opportunities. How do we make this happen? The interest rate policy certainly does not stand alone. Improvements must also be made in other monetary, financial and fiscal policies and a variety of business initiatives, as well as in the government’s structural reforms, to correct the weaknesses in the economic system.