Friday, Indonesia's central bank lowered its key interest rate by a quarter point to the lowest level on record to safeguard the slowing economy.
The Bank Indonesia slashed its policy rate to 7.5% from 7.75%, its fifth straight month of reduction. The decision was in line with economists' expectations. This took a total reduction of 175 basis points so far this year.
Asian central banks have been lowering their interest rates to spur growth, in the wake of global economic slowdown hitting domestic economies. The Bank of Korea and Taiwan's central bank have kept their bank rates on hold in March to assess the impacts of the series of reductions in the previous months.
Further, the central bank lowered its growth forecast for 2009 to 3%-4% from 4% in March. The Indonesian economy expanded 6.1% in 2008. Bank Indonesia Deputy Chief Hartadi Sarwono had said in March that economic growth may slow to below 4% in 2009.
The Asian Development Bank, or ADB, forecast the Southeast Asia's largest economy to grow at a slower pace of 3.6% in 2009, but pick up to 5% in 2010.
The central bank may reduce the rate further, given the fall in inflation and exports. In March, Indonesia's inflation eased to 7.92% from 8.60% recorded in the previous month. The current rate of inflation is the lowest in a year. The central bank forecasts 2009 inflation to be at the lower end of 5%-7% target.
The country's exports declined 32.8% year-on-year in February to US$7.08 billion. Sarwono had said exports are expected to contract by up to 28% in 2009. Meanwhile, the ADB forecast merchandise exports to fall by at least 25% this year as the country's major trading partners are in recession or headed in that direction.
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