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We have room for more rate cuts: Bank Indonesia

Indonesia could follow last week's interest rate cut with additional monetary stimulus, the deputy governor of the central bank said Tuesday.

Speaking exclusively to CNBC's Bernard Lo at the Asian Financial Forum in Hong Kong, Hendar, who is the deputy-governor at Indonesia's central bank, said, "We see a room for cutting [existing] policy rates but of course we have to consider the impact on macroeconomic stability, as well as financial stability."

Hendar emphasized the need for Indonesia to maintain a strong macroeconomic position given the volatility in global financial markets and headwinds to growth from a slowdown in China and weaker commodity prices.

Dimas Ardian | Bloomberg | Getty Images

"Because investors are looking for higher returns [on their] investment," he said. "The emerging economy [that] can offer a [stronger] macroeconomic fundamental and stability will attract foreign investments."

He added that any decision to cut rates further will be motivated by a desire to accelerate economic growth and maintain stability in financial markets, while keeping an eye on developments in the global economy, particularly in China.

"China is very important for us because [the Chinese economy] is one of the leading partners in trade, as well as investment, for Indonesia," he said.


The world's second largest economy is in the middle of an economic re-balancing which has pushed its growth rate below the 7 percent threshold. Recent data from Beijing showed the Chinese economy grew by 6.9 percent in 2015, down from 7.3 percent the year prior.

Analysts expect economic growth in Indonesia to be sluggish in 2016. Deutsche Bank forecasts 2016 real GDP growth to be unchanged from 2015's predicted full year rate of 4.7 percent, though the bank added Indonesia's performance will be superior compared to its emerging market peers.

Hendar concluded that good coordination between Indonesia's fiscal and monetary policy was needed to address global headwinds, particularly those posed by China, "in a very timely [manner, to] keep our economy robust and resilient."

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