Indonesian Central Bank Cuts Rate by 50 Basis Point to 8.75%

The Indonesian central bank Wednesday slashed its benchmark interest rate by 50 basis points to 8.75 percent following the good outlook of inflation to spur growth, according to a statement by the bank.

The 50 basis point cut is in line with the recent demand from the government and business sectors to boost retail sector, as the country has decided to rely much on the huge domestic market following the fall of demand of its products in overseas.

The recession has trimmed demand and slumped prices of Indonesia's export products, including textile coal, palm oil, rubber and fabricated goods.

On Dec. 4, the Indonesian central bank unexpectedly reduced the rate by 25 basis points to 9.25 percent, the first cut in a year.

Improving inflation outlook in recent months has given more rooms for the central bank to further cut rates, particularly in the first quarter of this year before the country holds the direct legislative and presidential election in April and July respectively.

An economic analyst from the Bank International Indonesia (BII), who goes with a single name Juniman, said the 50 basis point cuts indicated that the bank aimed to focus on growth.

"There will be more cuts in the coming months until April, as the inflation seems to ease," he told Xinhua.

Indonesia's inflation rate rose 11.06 percent in December from a year earlier following the twice oil prices cuts by the government last month.

Finance Minister Sri Mulyani has said that the huge spending on the polls and stimulus package of 50 trillion rupiah (some 4.9 billion U.S. dollars), as well as 4.6 billion U.S. dollars of unspent funds in 2008 are expected to contribute to boost growth to 5 percent this year.