Welcome, Indonesia, to the brethren of panicked central banks. Monetary-policy wonks around the globe are slashing interest rates as fast as they can, to keep just ahead of the brutal recession that's already hit most nations.Indonesia's the latest contestant, cutting rates another half-point to 8.25%. Granted, still relatively high, compared to America which has already cut rates to near-zero in an effort to stimulate a dead economy. But the Indonesian central bank in particular is between a rock and a hard place, having to simultaneously support the feeble rupiah, which is (like most emerging-market currencies) abandonded by investors in times of financial turmoil.
Let's hope that this policy of cheaper money jumpstarts more lending and investment. But beware the beast looming on the horizon: Inflation, which can be just as traumatic to populations (if not more) than steep stock-market losses. At some point central banks will have to hike interest rates in a hurry, to protect their devalued currencies. The U.S. in particular, to prevent the Chinese from fleeing Treasury bonds and thereby creating a run on the dollar.
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