Indonesia central bank cuts rate again, signals more 'cautious' easing

Indonesia's central bank, moving while US interest rates are steady, on Thursday made its third rate cut this year, expanding its bid to help raise the country's sluggish growth pace.
While signalling that Thursday's cut isn't the end of the easing cycle, Bank Indonesia (BI) said it will be cautious on its next move and that its current focus is to transmit its policy to the markets.
The decision came hours after the Federal Reserve, as expected, decided not to make a second hike for the US interest rates. BI said it expects the Fed to wait until the second half and then raise US rates twice.
BI cut its benchmark rate by 25 basis points to 6.75 percent, and reduced two other rates by the same amount.
"The timing was very good for BI, macroeconomic indicators support for a cut and the external condition is benign," said Leo Putra Rinaldy, economist with Mandiri Sekuritas in Jakarta.
The central bank, which earlier twice reduced reserve ratios to lift liquidity, left unchanged a requirement for banks to park 6.5 percent of third party funds at the central bank.
"We hope with enough liquidity and three rate cuts, banks can respond with lower lending rates. It is important to have credit availability in the market," said Juda Agung, BI's executive director of monetary and economic policy.
Wellian Wiranto, economist at OCBC, said "the easy part of easing" is now over, adding that while BI is not done cutting rates, "the room to do so is now more limited and it would be a lot more careful from now on."
BI is also under pressure from the government to increase moves spur economic growth. The government wants BI to bring its key rate at least 100 basis points down, to prompt commercial banks to cut lending rates.
Annual inflation rate was 4.42 percent in February, picking up from January's pace but still in BI's target band of 3-5 percent.
Southeast Asia's largest economy grew 4.8 percent last year, the weakest in six years, but growth picked up in the second half of 2015, suggesting an improving trend.
BI kept the rate at 7.50 percent almost all of 2015, when average inflation rate was more than 6 percent and the rupiah weakened by 10 percent.
Thursday's decision was announced after Jakarta markets closed. The rupiah strengthened more than 1 percent following the Fed's decision.