Jakarta. Bank Indonesia has cut its benchmark rate for the first time in 12 months in order to boost the economy, the central bank revealed on Thursday.
BI lowered its key interest rate by 25 basis points to 7.25 percent while also setting its overnight deposit and lending facility rates at 5.25 percent and 7.75 percent respectively.
"Indonesia's economic growth did not show signs of improvement in the fourth quarter [of 2015], despite the implemented fiscal stimulus and relaxation of macroprudential policies," Bank Indonesia said in the statement.
It also noted the lack of room for easing monetary policies, following tame inflation and easing uncertainty in the global financial market after the the US Federal reserve increased its interest rate last month.
Indonesia's inflation slowed to 3.4 percent last year from 8.4 percent a year earlier. Economic growth however is expected to slow to 4.7 percent, its slowest pace since 2009.
Finance Minister Bambang Brodjonegoro welcomed the central bank's decision, but noted that Bank Indonesia should guard the rupiah's exchange rate stable and avoid adding more pressure to the economy.
The rupiah has fallen 0.56 percent this year and traded at 13,865 against the US dollar on Thursday afternoon, according to Bloomberg Spot Exchange Rate.
Willian Wiranto, an economist with OCBC Bank, is among the economists who expected BI's decision. However, he urged BI should to communicate its reasons for the move and what to expect next to avoid misunderstanding in the market.
"The drop in [Indonesia's] year-on-year inflation rate for December has resulted in a spike in positive rates on a real, or inflation-adjusted, basis. In other words, it has given the central bank more room to cut its rate," he said