Bank Indonesia (BI), which cut its rate by 25 basis points in February, said pressures on macroeconomic stability had eased and this had made room for a rate cut.
However, uncertainty in global financial markets remains high so the bank will continue to monitor global risks and focus on strengthening rupiah liquidity and the supply and demand of foreign exchange.
BI also said it was now convinced that inflation this year will remain within the lower half of its target corridor while the current account deficit would be smaller than previously thought. In addition, growth is expected to rebound due to greater government capital spending.
The rupiah, which started depreciating in April 2014, has rebounded sharply in recent weeks, with the BI saying this was due to "positive sentiment" following the "possible delay" in a rate hike by the U.S. Federal Reserve, optimism about the domestic outlook after the government announces a series of new policies and the BI intervened to stabilize the exchange rate.
Today the rupiah was trading at 13,482.2 to the U.S. dollar, up 9.3 percent since a low of 14,733.5 on Oct. 3, but still down 7.7 percent since the start of the year.
"Bank Indonesia will continue to strengthen efforts to stabilise the rupiah in line with the currency's fundamental value, thereby maintain macroeconomic and financial system stability," BI said.
Indonesia's growth in the third quarter of this year is projected to be slightly higher than the pace in the second quarter due to greater government spending while exports are only expected to rise gradually in line with weaker-than-expected global growth.
The BI maintained its forecast for growth this year of 4.7 to 5.1 percent. In the second quarter, Indonesia's Gross Domestic Product rose by an annual 4.67 percent, down from 4.72 percent in the first quarter.
Indonesia's consumer price inflation rate eased to 6.83 percent in September from 7.18 percent in August, prompting the central bank to predict that inflation for 2015 will be below its midpoint target of 4.00 percent. The BI targets inflation at 4.0 percent, plus/minus 1 percentage point.
Bank Indonesia issued the following statement: