Feb. 4 (Bloomberg) -- ‘Gloomier’ Outlook
Sluggish overseas demand is crimping Indonesia’s economic expansion. The central bank expects growth to weaken to as little as 4 percent this year, the slowest pace since 2001, from an estimated 6.1 percent in 2008.
“Several indicators show that the global economy is gloomier than estimated several months ago,” the central bank said in today’s statement. “The impact is being felt in the nation, particularly in sectors related to foreign trade.”
Growth may remain subdued unless commercial lenders are prepared to pass on the central bank’s cuts to their borrowers, said economists including Enrico Tanuwidjaja.
A half-point cut “is an important signal to the banking sector to ease borrowing costs in order to stimulate domestic business activities,” said Tanuwidjaja from Oversea-Chinese Banking Corp. in Singapore.
Commercial Lenders
Bank Indonesia has reduced its policy rate by 1.25 percentage points to an eight-month low since December, while commercial banks have lowered the overnight base lending rate to 16.44 percent from 16.47 percent in the same period, according to central bank data.
“Bank Indonesia will take the necessary measures to strengthen the Indonesian banking sector, including the necessary liquidity management,” the central bank said.
The rate cut in Indonesia follows the Reserve Bank of Australia’s decision yesterday to reduce borrowing costs by one percentage point to the lowest level since 1964.
The Philippine central bank lowered its benchmark rate for the second time in six weeks on Jan. 29, cutting the overnight deposits rate to 5 percent from 5.5 percent.
Malaysia’s central bank cut its key rate by the most in more than a decade on Jan. 21, reducing its overnight policy rate by three-quarters of a percentage point to 2.5 percent.
Indonesia forecasts inflation will slow to between 5 percent and 6 percent by August, Finance Minister Sri Mulyani Indrawati said on Feb. 2. To boost growth in the $433 billion economy, the government plans to spend 71.3 trillion rupiah ($6.1 billion) this year, Sri Mulyani said.
To contact the reporters on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net
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