• Bank independence has limits, vice president says in interview
  • Lowering borrowing costs vital to compete with neighbors

Indonesia’s Vice President Jusuf Kalla stepped up pressure on Bank Indonesia to cut interest rates to create jobs and boost economic growth, saying the authority was legally obliged to listen to the government’s demands.

Kalla said easing inflation now meant the bank, which next meets Dec. 17, should loosen policy. He also dismissed concerns that government efforts to intervene in bank policy making risked market confusion, after he and Bank Indonesia Governor Agus Martowardojo expressed differing views on rates last week.

“Bank Indonesia is not absolutely independent, but independent after consultation” with the government, Kalla said an interview in his office in central Jakarta on Tuesday. Kalla said the central bank was legally obliged to consider government priorities, in this case growth and employment, when considering its policies. “The law says it must,” he said.

With economic growth at its slowest since 2009, the central bank has come under varying degrees of pressure from government this year to cut rates, with Kalla the most strident. Bank Indonesia flagged last month there was room to ease monetary policy because of inflation, which fell within its target range in November for the first time this year, though most economists expect the authority to wait until after the U.S. Federal Reserve’s December meeting.

The central bank should stop using the impending Fed decision as an excuse to avoid a rate cut, Kalla said in a speech in front of the governor last week. Volatility in the rupiah, down 10 percent against the dollar this year, is among other factors weighing on policy makers. A 2004 revision to the central bank law states that Bank Indonesia has to consider government policies when carrying out its aim, which is stated as “safeguarding the stability of the rupiah.”

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