Indonesia's central bank cut is new benchmark interest rate by 25 basis points for the second month in a row to stimulate domestic demand, including credit, to stimulate domestic demand at a time that inflation will remain close to the floor of its target range and economic growth is slightly weaker than expected.
Bank Indonesia (BI) cut its BI 7-day Reverse Repo Rate (BI 7-day RR Rate) to 4.75 percent from 5.0 percent, brining the total cut in that rate to 50 basis points following the cut in September.
BI adopted the 7-day rate as its new benchmark rate in August to improve the transmission of its monetary policy decisions to money markets. Prior to August BI cut its previous benchmark rate, the BI rate, four times from January through June by a total of 100 points.
Indonesia's inflation rate rose to 3.07 percent in September from 2.79 percent in August but BI reiterated that inflation is expected to fall towards the floor of its target corridor of 3 - 5 percent.
Indonesia's economy in the third quarter was slightly weaker than BI had expected and the impact of government spending is now seen as "somewhat limited" as spending is adjusted in the second half of this year.
Sluggish world trade has also undermined the country's exports while the rupiah's exchange rate has continued to appreciate, making the country's exports less competitive.
Economic growth this year is therefore expected to be around the lower end of the 4.9 percent to 5.3 percent range that BI has forecast, a slight downgrade in its forecast.
In August BI cut its growth forecast to 4.9-5.3 percent from a previous 5.0-5.4 percent and last month confirmed that expectation.
Indonesia's Gross Domestic Product grew by an annual rate of 5.18 percent in the second quarter, up from 4.91 percent in the first quarter, but BI said consumption in the third quarter had remained limited and private investment, particularly non-construction investment, had remained weak.
After being hit hard in 2013 - the year of the "taper tantrum" when the rupiah fell by 21 percent - the rupiah continued to depreciate until October 2015.
Since then it has been rising on positive sentiment about the economy along with a tax amnesty that encouraged Indonesians abroad to repatriate funds.
The rupiah was trading at 13,003 to the U.S. dollar today, up 6.1 percent this year.
Bank Indonesia issued the following statement: