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Indonesia cuts key rate to spur growth

Xinhua, October 20, 2016 Adjust font size:

Indonesian central bank on Thursday trimmed its benchmark interest rate for the sixth time this year to help accelerate slowing economic growth amid subdued inflation.

The lender cut its seven-day reverse repo rate 25 basis points to 4.75 percent to push demand of banking credit, said Tirta Sagara, director executive at communication department of the bank.

"The easing policy is believed to be able to straighten efforts to raise domestic demand, particularly banking credit, and help spur economic expansion," he told a press conference at the bank headquarters.

The central bank has cut the key rate by a total of 150 basis points in six cuts this year.

The bank also cut its deposit facility rate 25 basis points to 4.00 percent and lending rate facility 25 basis points to 5.50 percent, Sagara added.

Indonesia's economy expanded 4.92 percent at the first quarter and 5.18 percent at the second quarter, according to the statistic bureau, but the growth at the April-July period was supported by seasonally rising household consumption before and after Islamic fasting month and Islamic festivity.

Still, commercial bank lending expand only 6.83 percent in August, the slowest pace since November 2009, according to the lender.

Although the slowdown of the country's exports has eased amid recovery of commodity prices and demand, but its contribution to the growth remain low, according to the national statistic bureau.

Besides, manufacturing sector and foreign direct investment remain weak as importation of engine and capital goods fell 5.17 percent in September, it said.

Indonesia's inflation accelerated to 3.07 percent in September, on yearly basis, from 2.79 percent in the previous month, with a core inflation, excluding volatile and administrative prices, of 3.21 percent, it said.

The lender expects inflation at below 3.5 percent this year.

A huge flow of asset repatriation helps counter the risk of possible hawkish stand of the U.S. Federal Reserve in its upcoming December meeting. Endit