BI drops key rate to 7.75 percent

The Jakarta Post , Jakarta | Wed, 03/04/2009 4:50 PM | Business

Bank Indonesia (BI) has reduced its key interest rate by 50 basis points to 7.75 percent, as part of efforts to help the banking sector cope with worsening impacts of the global financial downturn, kompas.com reports.

On Wednesday, BI strategic planning and communication bureau head Didy Laksmono R. said that before deciding to reduce the rate, BI had evaluated the performance of the domestic and global economies.

“Inflation pressure was relatively low – at 0.21 percent – during February, thanks to lower fuel prices and availability of food supplies,” Didy said.

The lower prices of international commodities were another factor causing the low inflation pressure, he added.

Bank Indonesia said in a statement the economic slump was "taking a steeper turn" and developing countries were being hit by a fall in exports and negative market sentiment.

Indonesia's exports fell 36 percent in January from a year earlier, the biggest drop since 1986, due to plunging demand for natural resources and manufactured goods, the statistic's agency reported Monday.

It was the fourth straight month the central bank has cut the rate, lowering it a total of one and three quarter points from 9.5 percent since early December.

Indonesia had been struggling to bring down inflation topping 10 percent, but that figure slowed to 8.6 percent on year and 0.2 percent month-on-month in February, the bank said.

The central bank forecast a slowdown in economic growth to 4 percent in 2009, from an estimated 6.1 percent in 2008, "with considerable downside risk if global economic growth worsens even more than expected."

At the same time, Indonesia's banking system - which collapsed just over a decade ago in the Asian financial crisis - was in "stable condition," the bank said.

International reserves stand at $50.56 billion, with an additional $3 billion from government bond issues and a $2 billion World Bank loan also available. (ewd)

Source : www.thejakartapost.com