JAKARTA. A number of emerging market countries in Southeast Asia have aggressively cut interest rates to stimulate economic growth that has begun to slow down, due to the corona pandemic (COVID-19). However, Indonesia's intensity to cut interest rates is far below other emerging market countries.

As reported by idnfinancials.com, Bank Indonesia (BI) policy in maintaining benchmark interest rate at 4.5% is considered not aggressive. The reason, Indonesia still has a chance to reduce interest rates to 4.25% according to a number of consensus.

According to data compiled by idnfinacials.com, BI has only cut its benchmark interest rate twice since the beginning of 2020. The first cut was by 25 bps (basis points) on 2 February to 4.75%, then another 25 bps on 19 March to 4.5%.

Perry Warjiyo, Governor of BI, said that the step to maintain the interest rate cut by 0.5% year-to-date (ytd) was taken in order to "maintain the stability of the financial market and financial system" amid the COVID-19 pandemic.

A number of other countries - which are included in the Morgan Stanley Capital International (MSCI) emerging market index - such as Malaysia, Thailand and the Philippines have made more aggressive interest rate cuts.

On 20 May, Thailand through its central bank cut its benchmark interest rate by 25 bps to 0.5%. So far, Thailand has cut its benchmark interest rate three times, with total cut of 1.25%. 

Bank Negara Malaysia (BNM) cut its benchmark interest rate by 25 bps to 2% on 5 May, bringing its total rate cut to 1%. 

Then Bangko Sentral ng Pilipinas, like the central banks of Malaysia and Thailand, also cut its benchmark interest rate three times, with total rate cut of 1.25% ytd, to 2.75%.

Prakash Sakpal, Economist at ING, said BNM's decision signaled the need for monetary support from the government, to respond to the downward trend in Gross Domestic Product (GDP) and inflation.

"Economic conditions are facing a deeper decline, which requires policy accommodation," Sakpal said. So the cut, according to Sakpal, "remains an important choice for the central bank, especially if there is still room to cut." (KR/AR)

Interest Rate Cut Table in Southeast Asia emerging market. Table: KR/idnfinancials.com


 Interest (May)

Beginning of 2020

YTD cuts (bps)

Cut Times