Indonesia uses new rate to boost economy

 20 Aug 2016 - 2:46

Indonesia uses new rate to boost economy
A shop offers discounts during a sale at a shopping centre in Jakarta, yesterday. Indonesia’s economy grew more than expected in April-June, official data showed, thanks to a boost in consumer spending during Ramadan and surging state spending.


Jakarta: Indonesia’s central bank began using a new benchmark interest rate it hopes will transmit changes in borrowing costs more quickly, as policymakers seeks fresh ways to boost the economy.
Bank Indonesia left the new benchmark, called the seven-day reverse repo rate, unchanged at 5.25 percent. Analysts had been split on whether the bank would make a cut on the new rate’s debut.
Southeast Asia’s top economy has been slowing in recent years as demand for its key commodities exports have dropped, particularly from regional powerhouse China, and policymakers have been scrambling to find new ways to lift the country’s fortunes. The central bank had already cuts its old benchmark four times this year but analysts say that the moves were failing to persuade commercial banks to lower their own lending rates, meaning the changes were not having a major impact on the real economy.
The new rate, which is a shift from the old, 12-month reference rate, has a more short-term focus and the bank hopes it will help them influence markets more quickly and directly. “Our monetary policies will be more effective and efficient when interpreted by the markets,” said Bank Indonesia governor Agus Martowardojo, referring to the new rate.
While the benchmark rate was left on hold, the lending facility rate — the rate at which commercial banks can borrow from Bank Indonesia — was cut by 100 basis points to six percent. Despite Friday’s decision, Capital Economics forecast a reduction in the benchmark rate soon.