Subdued economy sees Indonesia cut official interest rate

JAKARTA - In a surprise decision, Bank Indonesia (BI) has cut its policy rate by 25 basis points, n a move that is largely to address subdued economic and credit growth, says ANZ Bank. “We expect GDP growth will struggle to reach the upper end of BI’s target of 5.0-5.4% after registering 5.0% in H1 2017,” the bank says.

“High frequency consumption and investment indicators point to a similar picture. Consumption indicators, including sales of motor vehicles and motor-cycles, have been contracting. Retail sales are rising, but at a slower pace and in sharp contrast to the more upbeat consumer sentiment data.

“Investment indicators have, meanwhile, selectively ticked up, but only because of a phase of favourable base effects. The level data remains mediocre. Credit growth has been soft.

 ANZ expects a combination of weak macro data, within-target inflation and diminished external vulnerabilities to make a case for further easing, with one more cut in Q4 2017.  www.live.anz.com (ATI).