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By Adriana Nina Kusuma, Tyagita Silka
JAKARTA, April 3 (Reuters) - Indonesia's central bank cut its policy interest rate by 25 basis points, as expected, and said it sees room for further cuts in a bid to spur consumption-driven growth amid slowing inflation and a slump in exports.
Indonesia, which faces parliamentary elections next week and presidential elections in July, has cut its key interest rate by a total of 2 percentage points since December to 7.5 percent, to bolster growth that is now forecast at 3-4 percent for 2009.
"Regarding the BI rate, we see room for lowering it because we see that inflationary pressures are still in line with our expectations and may still continue to ease," central bank deputy governor Hartadi Sarwono said.
Indonesia's inflation eased to a one-year low of 7.92 percent in March from 8.60 percent in the previous month and analysts polled by Reuters poll ahead of the move forecast the overnight target BI will fall to 7.0 percent by the end of the year.
But some analysts warn that cuts are not filtering through to Southeast Asia's largest economy fast enough to boost domestic consumption. Consumption accounts for about two-thirds of gross domestic product and gives Indonesia a better chance to cushion the impact of the global downturn than some of its more export-dependent peers. Exports account of a third of Indonesia's GDP.
"The pass-through to businesses has been much lower with the lending rates having come down by only 30 basis points or so. No doubt the central bank will be increasing pressure on commercial banks to pass on more of the benefits," said Prakriti Sofat, economist at HSBC in Singapore in a note to clients.
CONSUMER PAIN
The impact of the global crisis has started to hit spending by Indonesian consumers. A survey of about 600 upper-middle-class women in Jakarta by market research firm Ipsos Indonesia found that 70 percent had reduced household expenditure, according to the Jakarta Post newspaper.
Auto sales have also fallen sharply this year, with February vehicle sales down 27.4 percent from the same month a year ago, according to industry data.
"Interest rates affect consumption directly via bank loans. The problem now is that the banks are being passive because this slowdown is still at the early stage," said economist and bond strategist Helmi Arman of Bank Danamon, adding that the rate cuts would eventually have an impact.
"It will affect consumption, although it takes time."
The central bank cut its 2009 growth forecast to 3-4 percent last month, from a previous forecast of 4 percent. The economy, which expanded 6.1 percent last year, is still faring better than many other Asian economies, many of which have already stumbled into recession.
Investors had largely priced in the quarter percentage point cut and the bond market showed little reaction to the decision.
"They had anticipated this. They had built long positions beforehand," debt analyst Willing Bolung of ANZ Bank. "It's buy on rumour and sell on facts."
Indonesia's exports slumped 33 percent in February from a year earlier after a 36 percent fall in January, reflecting the global slump in demand that has hit Asia's exports across the board.
The authorities in Jakarta have taken several steps to protect the economy from the impact of the severe global downturn including a 73.3 trillion rupiah ($6.35 billion) fiscal stimulus package, to create jobs, a key issue for voters as Indonesia gears up for elections this year. (Additional reporting by Dicky Kristanto and Sonya Angraini; Writing by Sara Webb; Editing by Ed Davies and Tomasz Janowski)