USD/IDR Rises After Surprise Interest Rate Cut from Bank Indonesia

The Indonesian rupiah fell against the US dollar today after Indonesia’s central bank performed a surprise interest rate cut. Despite the decision, the bank had an optimistic outlook for the nation’s economy.
The Bank Indonesia cut its interest rates by 25 basis points. Now, the 7-day Reverse Repo Rate stands at 3.75%, the Deposit Facility rate at 3.00%, and the Lending Facility rate at 4.50%. The bank explained its decision citing the following reasons:

The decision is based on projected low inflation, maintained external stability as well as follow-up policy measures to expedite the national economic recovery.

The bank expressed an optimistic view of the global economy:

Global economic improvements have continued after recording stronger growth in the third quarter of 2020.

The outlook for the domestic economy was good too:

At home, domestic economic growth is rebounding in line with increasing fiscal stimulus realisation and greater public mobility together with stronger global demand. Economic growth in Indonesia rebounded to 5.05% (qtq) in the third quarter of 2020 after contracting 4.19% (qtq) in the previous period, thereby reducing the contraction annually to 3.49% (yoy) from 5.32% (yoy).

Inflation remained a concern, though, despite a slight improvement in October:

Inflation remains low on weak domestic demand and adequate supply. In October 2020, the Consumer Price Index (CPI) stood at 0.07% (mtm), thus bringing CPI inflation for the year to 0.95% (ytd) or 1.44% (yoy) annually, up slightly from 1.42% (yoy) in September 2020.

USD/IDR rose by 85 (0.6%) to 14,155 as of 10:59 GMT today.
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