Indonesia's central bank cut its key interest rates for the second time in a row, a move that was expected by many, along with the reserve requirement for banks in a move to boost economic growth while inflationary pressures are easing and the exchange rate of the rupiah currency has been rising.
Bank Indonesia (BI) cut its benchmark BI rate by another 25 basis points to 7.0 percent and the deposit facility rate - known as Faspi - and the lending facility rate by the same amount to 5.0 percent and 7.50 percent, respectively.
The primary reserve requirement on rupiah deposits was lowered by 100 basis points to 6.5 percent, effective from March 16.
BI did not issue a specific guidance though it said recent government deregulation had given it "greater room to ease monetary policy while maintaining macroeconomic stability" in 2016.
In January the BI also cut its rate by 25 basis points and it has now cut the rate by a total of 75 points since November 2014, including a 25 point cut in February 2015.
"The dual policy of lowering the BI rate and primary reserve requirement is expected to strengthen efforts to boost the ongoing economic growth," BI said.
Expectations that BI would cut its rate today firmed following data that showed a larger-than-expected 21 percent plunge in Indonesia's exports in January, the 16th month of decline, while a 17 percent fall in imports also topped forecasts.
Indonesia's economy shrank by 1.83 percent in the fourth quarter from the third quarter but on an annual basis Gross Domestic Product rose by 5.04 percent, up from 4.74 percent, supported by government spending on infrastructure.
But personal consumption and non-construction investment is sluggish, BI said, adding that the slump in exports is persisting in line with the global economic slowdown and falling commodity prices.
For 2016 BI is expecting growth of 5.2 to 5.6 percent, up from 2015's 4.8 percent, with activity supported by fiscal stimulus in the form of accelerated infrastructure project development while private investment is expected to improve after government deregulation and the greater room to ease monetary policy.
Inflation in Indonesia fell in the last four months of 2015 but rose to 4.14 percent in January from December's 3.35 percent but low oil prices are expected to restrain any inflationary pressures and the BI confirmed that it expects inflation in 2016 to remain in the middle of its target range of 4.0 percent, plus/minus 1 percentage point.
The rupiah fell out of favor with investors last year, dropping almost 10 percent against the U.S. dollar but this year it has been on a firmer trend, with BI attributing this to foreign capital inflows as uncertainty eased on global financial markets and confidence in the domestic economy was restored following the government's move to improve the investment climate and begin infrastructure projects.
BI also said a more "dovish" outlook for the U.S. federal funds rate, with expectations for further hikes pushed back until the second half of this year and the size of these increases now smaller, also drove an appreciation of the rupiah.
The rupiah was trading at 13,490 to the dollar today, up 2.3 percent from the start of the year.
Bank Indonesia issued the following statement: