The central bank could capitalize on the high level of confidence in the Indonesian economy after the international rating agency Standard and Poor's (S&P) upgraded the country's credit sovereign rating to BBB, from the previous BBB- with a stable outlook, chief economist of state lender Bank Negara Indonesia Persero Tbk (BNI) Ryan Kiryanto remarked on Thursday.
"The real sector and banking industry need stimuli from the interest rate to drive economic growth and that Indonesia should not miss the momentum," he emphasized.
If BI lowers its 7-Day Reverse Repo Rate on June 20, it will be the first loose benchmark rate since the central bank tightened its interest rate policy since 2018.
Last year, the BI had aggressively raised its key rate by up to 175 basis points, or 1.75 percent, to the current position of six percent to stem capital flight.
Kiryanto remarked that the BI had sufficient space to slash the key rate. The improving domestic economy, viewed from different investment indicators and financial system resilience, had helped stem capital flight.
"Indonesia's inflation could be kept at a low level. An improvement was witnessed in the competitive edge (ease of doing business/EODB) index in 2019. The foreign exchange reserves, which stood at US$124 billion, is equivalent to 7.6 months of imports, and the government's foreign debt repayments are also still adequate," he pointed out.
Several nations have reduced their benchmark interest rates in recent weeks as a precautionary measure against the global economic slowdown. Australia, Malaysia, the Philippines, and India had adjusted their benchmark interest rates in the past couple of weeks.
The Fed is projected to reduce its benchmark rate that presently stands at 2.25-2.50 percent during its committee council meeting on June 18.
EDITED BY INE