The minutes of Federal Open Market Committee show the policymakers preparing to change tact on bond purchasing before begin to raise the target range for the federal funds rate - Photo by Federal Reserves Office

JAKARTA (TheInsiderStories) – United States (US) Federal Reserve (Fed) cut the Fed Fund Rate (FFR) for third time since 2018 to help the economy. At the last meeting, the Federal Open Market Committee Meeting (FOMC) lowered the FFR to 1.5-1.75 percent, or slice by 25 basis points.

Based on the official statement released on Thursday (10/31), the Board said the decision considered the implications of global developments on the economic outlook and inflationary pressures. The decision also supported the committee’ view to continued the expansion of economic activity, strong labor market conditions, and inflation approaching the two percent target were the most likely results.

However, the uncertainty regarding that view remains. Therefore, the Committee will continue to monitor the implications of incoming information regarding economic prospects. In determining the timing and size of future adjustments related to the benchmark interest rate, the FOMC will assess the realization and prediction of economic conditions related to the maximum employment target and the two percent inflation target symmetrically.

The assessment will consider various information, including labor market conditions, indicators of inflationary pressures and inflation expectations, as well as financial market developments and international conditions.

Two of the FOMC members voted differently to the decision to cut interest rates by 25 basis points. President of the Federal Reserve Bank of Boston Eric Rosengren and President of the Federal Reserve Bank of Kansas City Esther George chose to keep the benchmark interest rate in the range of 1.75 – 2 percent.

The Fed‘ decision will take into account Bank Indonesia’s policy in the next round. Earlier, BI make a fourth straight cut during this year, after decided cut the BI 7 days reverse repo (BI-7DRR) rate by 25 bps to 5 percent. The central bank also cut the Deposit and Lending Facility by 25 bps to 4.25 percent and 5.75 percent, respectively.

In the press briefing at his office, BI’ Governor Perry Warjiyo, said the policy is consistent with inflation estimation and return on the domestic financial investment.This policy was also make by paying attention to external and internal situations, he adds.

Externally, said the governor, world economic growth has been slower, although financial market uncertainty has eased slightly after the United States (US) – China trade agreement in October 2019. The weakening of global economic growth is influenced by decline in trade volume due to tensions between US and China.

He noted, the US economy is also slowing down due to the declining confidence of economic actors. Similar thing also occurred in Europe, Japan, China and India. This condition, he rated, had an impact on the decline in global oil and commodity prices, which subsequently led to weak inflationary pressures.

“Various countries responded to this situation by loosening monetary policy and providing fiscal stimulus,” Warjiyo said.

In the next round, the policy mix pursued by BI and the government is expected to maintain the Indonesian economic growth. In 2019, economic is targeted to grow in the range of 5.0 – 5.4 percent and 5.1 – 5.5 percent in 2020.

Meanwhile, the current account deficit is predicted to remain under control. Going forward, the current account deficit in 2019 and 2020 is forecasted to be in the range of 2.5-3 percent of GDP, and will be supported by large inflows of foreign capital.

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