Bank Indonesia Cuts Benchmark Rate


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By I Made Sentana

JAKARTA, Indonesia--Bank Indonesia cut its benchmark interest rate Thursday a quarter percentage point to 5.0% to help spur the country's fragile recovery in domestic economic growth amid low inflation while the current-account deficit has narrowed.

With the U.S.Federal Reserve keeping rates unchanged at its meeting on Wednesday, the Indonesian central bank saw an opportunity to take easing action to support the economy without putting too much pressure on the local currency.

Ten out of 11 economists polled by The Wall Street Journal predicted a quarter-point cut in the seven-day reverse repo rate, which BI last month adopted as its new benchmark rate, to 5.0%. While one of them expected the central bank to hold the rate steady.

Economic growth picked up a little on a year-over-year basis to 5.18% in the second quarter from 4.92% in the first quarter, but it remains shaky, economists said.

Indonesia's current-account deficit shrank to $4.7 billion, or equal to 2% of gross domestic product in the second quarter from $4.8 billion, or 2.2% of GDP in the first quarter, making the rupiah less vulnerable to volatility in the global financial market.

The year-over-year inflation rate eased to 2.8% in August, its lowest level since the end of 2009.

With the latest move, Bank Indonesia has cut borrowing costs by 1.25 percentage points so far this year, as the U.S. central bank has declined to raise interest rates.

Write to I Made Sentana at

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