Indonesia - Unexpectedly Cuts Benchmark Interest Rate to Bolster Expansion

Indonesia’s central bank unexpectedly cut its benchmark interest rate for the first time in more than two years to spur growth as the global recovery weakens and inflation slows.

Bank Indonesia lowered the reference rate by a quarter of a percentage point to 6.5 percent, Governor Darmin Nasution said in Jakarta today. All of the 15 economists surveyed by Bloomberg News expected no change.


Emerging-market nations have boosted measures to drive growth, as a struggling U.S. recovery and deepening European crisis threaten the global economy. Brazil, Turkey, Russia and Pakistan have cut borrowing costs in 2011, while Asian countries from the Philippines to South Korea have refrained from further interest-rate increases in recent weeks.

“As growth weakens, the policy makers elsewhere in the region may well follow a similar path,” said Edward Teather, an economist at UBS AG in Singapore. “We do actually forecast lower policy rates for Malaysia, Thailand and the Philippines” over the next six months, he said.

The Jakarta Composite Index (JCI) pared gains after the decision, ending the day up 2.3 percent, according to data compiled by Bloomberg. The rupiah weakened 0.5 percent to 8,965 per dollar as of 4:28 p.m. local time.

The Jakarta Composite has fallen 11.7 percent in the past month, the most in Asia, as investors pare bets on emerging markets. The rupiah slid about 4.6 percent against the dollar in the same period. Bank Indonesia said today it has sufficient foreign-exchange reserves to support the rupiah.