RTTNews - Wednesday, the Indonesian central bank decided to lower its key interest rate for the ninth straight month to an all time low.

As expected, the Bank Indonesia reduced its benchmark rate by 25 basis points to 6.5% from 6.75%. The central bank has thus, slashed the rate by 300 basis points since December 2008. The decline in the rate is still consistent with the inflation target, the central bank said in the statement.

The central bank expects rising domestic demand and high commodity prices to cause inflationary pressures next year. The bank added that monetary policy would be directed to be more anticipative of the potential inflation increase and aims to meet its inflation target of 5% in 2010.

In July, annual inflation slowed to 2.71% from 3.65% in the preceding month. For the January to July period, consumer prices increased 0.66%.

The Southeast Asia's largest economy is expected to grow at the upper end of 3.5% to 4% range this year. The central bank holds the view that growth potential in the third quarter is higher than previous estimates, supported by household spending and exports.

In response to rate cuts, banking credits started to show improvement although slowly, the central bank noted.

Other economic indicators also pointed towards improvement in the economic situation. Indonesian consumer confidence strengthened to 115.4 in July from 109.1 in June indicating that the number of optimists outnumber pessimists.

In June, the value of exports grew 27.21% year-on-year to US$9.33 billion. Meanwhile, the value of imports fell 36.46% to US$7.95 billion.

Last month, the International Monetary Fund recommended Indonesia to continue its stimulus package and to follow a 'cautious' monetary policy stance. A fiscal stimulus package of around 1.4% of GDP was announced in February 2009. The Washington-based agency noted that private consumption assisted by the fiscal stimulus package helped to maintain positive economic growth.

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