Bank Indonesia (BI), which will shift to a new benchmark rate in August, also said it would ease its macroprudential policy stance by relaxing loan-to-value (LTV) and financing-to-value (FTV) ratios on home and commercial loans and lower the statutory ratio (GWM-LFR) to 78 percent from 80 percent to encourage further bank credit.
In April the BI announced it would adopt the BI 7-day (Reverse) Repo rate as its benchmark instead of the current BI rate to improve the transmission of its policy to money markets.
Today the BI rate was cut by a further 25 basis points to 6.50 percent, the BI's fourth cut so far this year for cuts totaling 100 points. The BI 7-day reverse repo rate was lowered to 5.25 percent while the deposit rate was also cut to 4.50 percent and the lending facility rate cut to 7 percent.
The central bank said it believed its easing measures would help strengthen the government's efforts to boost sustainable growth and accelerate structural reforms.
Although the rate cut was not universally expected, BI Governor Agus Martowardojo last month said the central bank may ease its policy again this month if economic conditions were stable, a likely reference to the policy of the U.S. Federal Reserve, which yesterday kept its rate steady.
Although Indonesia's economic growth in the second quarter of this year is expected to improve from the first quarter, the BI said it would not be as strong as it had expected as growth in exports is seen to be limited and domestic demand still needs to strengthen.
However, the BI maintained its outlook for growth in 2016 of between 5.0 and 5.4 percent. Gross Domestic Product in the first quarter of this year grew by an annual 4.92 percent, down from 5.04 percent in the previous quarter.
Indonesia's inflation rate eased further in May to 3.33 percent from 3.6 percent in April but is expected to remain around the BI's target of 4.0 percent, plus/minus 1 percentage point this year.
Indonesia's rupiah has been relatively stable in recent months and eased slightly on the BI's latest rate cut. The rupiah was quoted at 13,405 to the U.S. dollar, down from levels around 13,375 late yesterday, but up almost 3 percent since the start of this year.
Bank Indonesia issued the following statement: