Indonesia central bank's policy easing to go beyond 2 rate cuts

JAKARTA: Indonesia's central bank, which surprisingly cut interest rates last week, will keep easing monetary policy to fend off any negative impact on its economy from slowing global growth, its new senior deputy governor said on Tuesday.

Bank Indonesia (BI) is hoping to help lift growth in Southeast Asia's biggest economy with two rate cuts of 25 basis points each since July, bringing the benchmark 7-day reverse repo rate to 5.50%.

Destry Damayanti, who joined BI's board of governors this month, said "a prolonged policy easing" is needed because of the United States-China trade war, which she said could expand, as well as other factors including a potential recession in Europe and the inverted yield curve in the US

She said she does not foresee a global recession as bad as the one in 2008 due to measures taken to deleverage financial players after the last recession.

However, a slowdown in global growth may hit Indonesia's expansion, Damayanti told Reuters in an interview.

"We've charted our business cycle and it showed we've reached our lowest point and has started to go up from there. It means there is momentum to grow and what we have to do is to create a conducive climate," said Damayanti, an economist by training.

Policy easing might not always mean an interest rate cut, though there will be room for more cuts should the Federal Reserve continue lowering US interest rates to try to prevent a potential recession there, she said.

BI is considering a loosening of what it calls the "macroprudential intermediation ratio", or the central bank's preferred measure for a commercial bank's loans compared to deposits, she said.

The definition of deposit may be broadened to not only include people's savings and bonds issued by a bank, but also funds the bank borrowed from other entities, Damayanti said.

Damayanti said BI's recent policy easing will affect GDP growth more next year rather than in 2019.

"We're talking 2020," she said, adding "it will be more difficult globally in 2020, but we're more ready. We want to lift the demand side, so people dare to invest and the cost of borrowing can be reduced."

BI's official projection for 2019 growth is below the midpoint of its 5.0%-5.4% range. It expects a slight acceleration next year to 5.3%, the midpoint of its 5.1%-5.5% forecast range.