Finance

Indonesia central bank surprises with rate cut in bid to spur growth

Bank Indonesia Governor Agus Martowardojo (C) along with Senior Deputy Governor Mirza Adityaswara (L) and Deputy Governor Perry Warjiyo attend a news conference at the bank's headquarters in Jakarta, Indonesia.
Reuters
Jakarta - Indonesia's central bank on Tuesday cut its benchmark policy rate for the first time since October, unexpectedly pulling the trigger in a bid to boost sluggish lending and growth in Southeast Asia's biggest economy. In another effort to stoke lending and consumption, Bank Indonesia (BI) also said it would change downpayments on automotive and home loans and review bank liquidity rules. "The theme of this monetary policy meeting was to lower the benchmark policy rate due to stability and to support economic recovery," BI Governor Agus Martowardojo told reporters. Martowardojo said external risks, including those involving policy of the US Federal Reserve, had been reduced. BI cut the 7-day reverse repurchase rate to 4.50% and lowered two other main policy rates. Indonesia becomes the second major Asian economy to cut its policy rate this year after India on Aug 2. In a Reuters poll, 19 out of 20 economists forecast that BI would hold the key rate at 4.75% out of concern changes in other countries' monetary policies could hurt the rupiah. An opportunity taken "Clearly, BI made use of the opportunity to cut rates: inflation is slower than expected, the rupiah staying relatively stable and external risks seem to be manageable," said Gundy Cahyadi, a DBS economist in Singapore. The rupiah this year has been relatively stable and has strengthened 1% against the dollar - significantly less than most Asian currencies have. Indonesia's capital and bond markets have had net inflows. BI said it expects the rupiah to remain stable and rupiah-denominated assets to continue to be attractive. "There is some risk that BI may follow through with another cut in October, but for now, we think BI may leave rates steady at 4.50% till next year," said Cahyadi. Twice after Indonesia this month announced that second quarter growth was basically unchanged from January-March, Martowardojo flagged the possibility of monetary easing. The last benchmark cut was in October, after which BI repeatedly said its policy stance was "neutral" as it watched global changes, including plans by Fed to hike US rates and reduce its balance sheet. Asked whether BI has changed its stance with Tuesday's cut, Martowardojo said: "BI's current position remains neutral." In 2016, BI slashed the benchmark six times, by a total of 1.5 percentage points, and eased some lending rules in a bid to spur growth. In April-June, the economy grew 5.01% from a year earlier. That was the same as in the first quarter, and below market expectations and BI's forecast, as private consumption remained lethargic. Weak loan growth June's annual loan growth of 7.7% was the weakest in eight months. After Tuesday's cut, "rates in other instruments would go down. The structure of monetary operation's interest rates would go down. This will force banks to use their available liquidity to extend it for lending," BI Deputy Governor Perry Warjiyo said. Other Southeast Asian nations had higher growth in the second quarter than the first this year, boosted by solid exports. Indonesia's exports have improved, but its growth depends far more on consumption than trade. Since 2014, Indonesia's annual growth has remained around 5%, well below President Joko Widodo's target of 7%. BI saw room to cut because of lower inflation, a healthy current account deficit outlook and fewer 2017 Fed rate hikes than initially expect, Warjiyo said. Martowardojo said BI plans to change downpayment rules for automotive and home loans to apply differently, by regions. Last year, BI eased the loan-to-value (LTV) ratio requirement, lowering the minimum downpayment nationally to between 15-25% from 20-40%. The central bank is also reviewing rules on loan to financing ratios, which could increase lending.

Malaysia’s RHB Bank and AmBank drop merger plans; shares rise

Malaysia's RHB Bank Bhd and AmBank Holdings Bhd shares climbed in early trade on Wednesday, a day after calling off their merger talks, saying they could not arrive at mutually acceptable terms. Shares in RHB were up 3.7 percent while AmBank's stock was up 1.5 percent. In a joint statement filed to the bourse, RHB Bank and AmBank said that "after much discussion and deliberation, (both parties) were not able to reach an agreement on mutually acceptable terms and conditions for the proposed merger." The banks have "mutually agreed to end discussions on the proposed merger of the two banking groups." The banks said they will continue with their respective business strategies, at the cessation of the three-month long negotiations. Reuters reported earlier, citing sources, that the deal was likely to be called off. The merger talks began in June after receiving the Malaysian central bank's blessing to start. RHB had said it planned to acquire AmBank in an all-stock deal. The Malaysian central bank has encouraged consolidation of the sector, although deals have proved hard to conclude. RHB, CIMB and Malaysian Building Society started negotiations in 2014 over a $20 billion three-way merger to create Malaysia's largest bank, but talks collapsed in 2015. A successful takeover of AmBank -- which has a market value of 14.16 billion ringgit ($3.31 billion) -- would reinforce RHB's ranking as the fourth-largest Malaysian bank by assets behind Maybank, CIMB Group Holdings and Public Bank. AmBank is the sixth-biggest. A source familiar with the matter told Reuters deal talks have stumbled over valuation because of contingent liabilities. The source did not want to be named because the talks were confidential. RHB and AmBank, which had requested for that trading in their shares be halted on Tuesday, will resume trading on Wednesday. Australia and New Zealand Banking Group, a 24 percent shareholder in AmBank, had been looking to divest its stake through the sale, though Malaysian retirement fund KWAP may yet buy the holding. Reuters reported in July that they were in negotiations over a $900 million deal.

China is pushing its Amazons and Googles to spend hundreds of millions on failing companies

Mixed ownership reform is starting in earnest in China, and it's going to cost healthy companies a fair amount of money.

15 of the hardest interview questions you have to answer to become a flight attendant

You may not be able to answer these tough questions flight attendants get asked in the job interview.

21 lottery winners who blew it all

Many people's lives became notably worse after they hit the jackpot.

Martin Shkreli is buying websites associated with the names of journalists critical of him and customizing them with mocking messages

Martin Shkreli trolled journalists who have written about or tweeted about him by purchasing the internet domains associated with their names.

People are paying $80,000 for ‘family architects’ to fix their kids through 24/7 surveillance

Some families said the costs for the therapy-like program sailed "well into the six-figures."

The reaction to Merck’s CEO leaving Trump’s council proves that it pays to get political

Merck's consumer perception has received a notable lift after its CEO Kenneth Frazier quit President Trump’s manufacturing council last week.