Indonesia's central bank front runs Fed with surprise rate cut

Indonesia's central bank surprised markets on Tuesday by cutting its benchmark interest rate by 25 basis points (bps) to 5.75%, front-running the widely expected rate cut by the US Federal Reserve (Fed) later this week.

The move, which was not expected by the majority of economists, is seen as a pre-emptive move by Bank Indonesia (BI) to support the country's economic growth amid a slowing global economy.

BI Governor Perry Warjiyo said the rate cut was aimed at "maintaining macroeconomic stability and supporting economic growth in the midst of global economic uncertainty." He added that the bank would continue to monitor inflation and maintain price stability.

The rate cut is the first by BI since October 2020, when the bank slashed its benchmark rate by 50 basis points to 4.25%. The rate hike is also in line with the government's target of achieving economic growth of 5.3%-5.7% in 2023.

The rate cut is likely to be welcomed by businesses and consumers, who have been facing rising costs due to high inflation. The move is also expected to boost the country's stock market and currency.

However, some economists have warned that the rate cut may be premature, given that inflation is still above BI's target of 3%. They argue that the rate cut could lead to a resurgence in inflation, which would hurt businesses and consumers.

The Fed is widely expected to raise its benchmark interest rate by 25 basis points later this week, in an effort to combat rising inflation. The Fed has already raised its rate twice this year, by 25 basis points each time.

BI's rate cut is a sign that the bank is confident in the country's economic outlook, despite the global economic uncertainty. The move is likely to be welcomed by businesses and consumers, but it remains to be seen whether it will be effective in boosting economic growth and curbing inflation.