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Indonesia makes surprise rates trim
Source: Bloomberg News |
November 11, 2011, Friday
|
Print Edition
Print Edition
INDONESIA unexpectedly cut interest rates by half a percentage point to a record low to shield the economy from a faltering global recovery. The rupiah weakened.
Bank Indonesia lowered the reference rate to 6 percent, it said in a statement in Jakarta yesterday, confounding all 19 economists surveyed by Bloomberg News. Eight had predicted a quarter-point cut and the rest expected no change. The reduction is the biggest since March 2009.
The world's fourth-most populous nation joins countries from Brazil to Australia in lowering borrowing costs to boost spending at home, as Europe's debt crisis and higher United States unemployment threaten exports. Indonesian inflation eased to 4.42 percent last month, the slowest pace in more than a year, encouraging officials to add to October's quarter-point rate cut.
"This decision is shocking the market," said David Sumual, an economist at PT Bank Central Asia in Jakarta. "This won't be good for the rupiah and will increase imported inflation pressures. The central bank seems really worried that a global recession will hurt domestic demand."
The rupiah lost 0.7 percent to 9,030 per dollar as of 3:09pm local time, while the Jakarta Composite Index of stocks fell 2.6 percent.
Bank Indonesia lowered the reference rate to 6 percent, it said in a statement in Jakarta yesterday, confounding all 19 economists surveyed by Bloomberg News. Eight had predicted a quarter-point cut and the rest expected no change. The reduction is the biggest since March 2009.
The world's fourth-most populous nation joins countries from Brazil to Australia in lowering borrowing costs to boost spending at home, as Europe's debt crisis and higher United States unemployment threaten exports. Indonesian inflation eased to 4.42 percent last month, the slowest pace in more than a year, encouraging officials to add to October's quarter-point rate cut.
"This decision is shocking the market," said David Sumual, an economist at PT Bank Central Asia in Jakarta. "This won't be good for the rupiah and will increase imported inflation pressures. The central bank seems really worried that a global recession will hurt domestic demand."
The rupiah lost 0.7 percent to 9,030 per dollar as of 3:09pm local time, while the Jakarta Composite Index of stocks fell 2.6 percent.
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