Indonesia's central bank cut its key interest rate by half a percentage point on Wednesday to stimulate growth as it tries to limit the impact of the global economic slowdown.
Bank Indonesia (BI) reduced the benchmark rate to 8.25 per cent, officials said, while it admitted on its website that the world financial downturn was worse than expected.
"The impact on the domestic sector is felt more than before, especially in the trade sector. Sectors outside trade have relatively stable growth," the bank said.
Indonesian exports in December dropped 20 per cent year on year, the steepest decline in seven years.
The bank has been able to reduce interest rates as inflation continues to fall due to lower energy and commodity prices. The consumer price index dropped to 9.17 year on year in January from 11.06 per cent in December.
BI said inflationary pressures are set to ease in the coming months, opening the way to further rate cuts.