Market surprised by further cut of BI reference interest rate

Jakarta (ANTARA News) - The Fridays cut of reference interest rate by Bank Indonesia (BI) came as a big surprise for the financial market, a financial analyst said here on Tuesday.

"The cut of the reference interest rate was least expected by the market. The Central Bank was not expected to cut the rate in two successive months," Lukman Otunuga, a financial analyst from financial service company ForexTime, said.

On Friday, the Central Bank cut its BI 7-day Reverse Repo Rate by 25 basis points from 4.5 percent to 4.25 percent after last month cutting its from 4.75 percent.

Lukman said the move reflected strong confidence of Bank Indonesia in facing tighter U.S. monetary policy to cope with its domestic inflation.

The cut of the reference interest rate was followed with a 25 basis point cut of the interest rates on Deposit Facility to 3.5 percent and on Lending Facility to 5 percent on Sept 25 , 2017.

Head of the Ban Indonesia Economic and Monetary Policy Dody Budi Waluyo said the cut in reference interest rate was consistent with the realization and estimate of inflation rate, which is relatively low in 2017.

"It also was in line with the estimates of inflation in 2018 and 2019 lower than the mid rate target and the current account deficit, which is well under control in a safe level," Dody said.

He said that external risks especially one related to the plan of the Fed on its fund rate and normalization of the US central bank balance sheet had also been taken into consideration.

Bank Indonesia is of the opinion that the present level of reference interest rate is quite adequate considering trend of inflation and macro economic condition.

Source: ANTARA News

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