Indonesia Central Bank Likely to Cut Interest Rate to 3.50 Percent: Economist

JAKARTA, KOMPAS.com – Bank Indonesia (BI) is projected to trim 7-day reverse repo rate (BI-7DRR) by another 25 basis points (bps) to 3.50 percent to speed up the national economic recovery, a senior economist said.

Eric Alexander Sugandi of the Institute for Strategic Studies (IKS) at Universitas Kebangsaan Indonesia (Indonesian National University) said the BI’s benchmark interest rate cut is likely to continue until the end of the year.

“With the latest development in BI’s interest rate policy, IKS at Universitas Kebangsaan Indonesia has revised its projection for the BI-7DRR interest rate to 3.50 percent from 4 percent previously,” Eric said in a report on Monday, November 23.

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Eric said this policy is based on the balance of payments surplus and the trade balance surplus until the end of the year. BI recorded a balance of payments surplus of $2.1 billion in the third quarter of 2020.

The country booked a $1 billion current account surplus or 0.4 percent of its gross domestic product (GDP) and a $1 billion capital and financial account surplus.

Then, he said, the Central Statistics Agency (BPS) has announced that Indonesia recorded a $3.6 billion trade balance surplus in October 2020. The export and import values stood at $14.4 billion and $10.8 billion, respectively. The exports rose 7.8 percent monthon month due to the increase in non-oil and gas exports to foreign countries.

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“IKS estimates that Indonesia’s trade balance surplus will reach about $19 billion-$22 billion throughout 2020,” said Eric.

Previously, the BI-7DRR was also cut by 25 bps to 3.75 percent at the BI Board of Governors’ Meeting on November 19. BI has lowered interest rates five times throughout this year.

BI Governor Perry Warjiyo said last week that the decision was taken to accelerate the national economic recovery following the low inflation rate and external stability.

(Writer: Fika Nurul Ulya | Editor: Erlangga Djumena)

Source: https://money.kompas.com/read/2020/11/23/083900626/akhiri-tahun-2020-bi-berpeluang-turunkan-suku-bunga-jadi-3-5-persen.