Bank Indonesia (BI) lowered its benchmark BI rate by another 25 basis points to 6.75 percent and has now cut the rate by a total of 75 basis points this year following cuts in January and February.
Today's rate cut was expected in light of declining inflationary pressures and lower volatility in financial markets. It also follows a statement by the bank's governor, Agus Martowardojo on March 7 when he said that the central bank was currently taking an easing stance and relaxing its policy.
Indonesia's inflation rate rose to 4.42 percent in February from January's 4.14 percent but the BI said the downward trend in oil prices should alleviate inflationary pressures and inflation should remain within its target corridor of 4.0 percent, plus/minus 1 percentage point, in 2016.
After declining steadily in recent years, Indonesia's rupiah has been gaining strength since early October last year, bolstered by the inflow of foreign capital, including to its stock market, and less demand for foreign exchange in the domestic market following new rules concerning the mandatory use of the rupiah.
The rupiah was trading at 13,063 to the U.S. dollar today, up 5.6 percent this year.
Indonesia's economy grew by an annual rate of 5.04 percent in the fourth quarter of last year and the BI expects growth to top that in the first quarter due to an acceleration of fiscal stimulus.
For 2016 the BI still expects growth in a range of 5.2 to 5.6 percent, above 2015's 4.8 percent, as household consumption remains strong while the export sector will continue to be under pressure from slower global growth and lower commodity prices.
Bank Indonesia issued the following statement: