With Fed on hold, South-east Asia seen diverging on rate policies

“That’s not the case for the Philippines”.

Meanwhile, inflation came in at 2.79% year-on-year in August, the lowest level since December 2009 and below the bank’s target of 3-5%, which allows room for further monetary easing.

Bank Indonesia will hold its monetary policy meeting on September 22 and it is widely expected to lower its benchmark interest rate further by 25 basis points to record low of 5.00 percent as the current stage of persisting deflation opens door to a series of rate cuts.

Martowardojo said credit growth has been dragged down by a “sharp decline” in foreign exchange loans, citing the slower-than-expected economic recovery in the U.S., Europe, China and Japan.

The two countries face different growth risks: Bank Indonesia has been in easing mode since the beginning of the year, cutting rates four times to help counter sliding commodity prices; the Philippines is among the fastest-expanding economies in Asia, with gross domestic product climbing 7 per cent in the second quarter from a year earlier. New Zealand’s central bank kept its benchmark interest rate at 2 per cent, remaining an outlier in a world of ultra-low or negative interest rates, but the high New Zealand dollar and tepid inflation may soon spur it to cut.

The Fed’s decision on Wednesday to postpone its rate increase gives emerging markets some reprieve by underpinning investor sentiment in high-yielding assets.

Indonesia’s stock market rose 0.7% on Thursday following the central bank’s announcement.

In the Philippines, all 16 economists surveyed by Bloomberg expect Bangko Sentral ng Pilipinas to keep the policy rate at 3%.

To analysts, on Thursday all the stars were aligned for the central bank to cut, especially after the Fed’s decision and less-hawkish comments about the pace of future US interest rate hikes. The bank announced in May a policy overhaul, including lowering the benchmark and narrowing the band around it.

“The policy of monetary easing is to strengthen the push for domestic demand, in order to promote momentum of economic growth”, said bank governor Agus Martowardojo.

He added that the inflation rate remains under control at 4 percent plus-or-minus 1 percent.