1. Indonesia Central Bank Cuts Rates, Eases Lending Rules to Boost Coronavirus-Hit Economy

JAKARTA, Feb 18 (Reuters) - Indonesias central bank cut interest rates for a sixth time during the pandemic and eased lending rules on Thursday in a bid to boost the coronavirus-hit economy as it downgraded its 2021 growth forecast.

Bank Indonesia (BI) cut the benchmark 7-day reverse repurchase rate by 25 basis points (bps) to a new record low of 3.50%, as expected by a majority of analysts in a in a Reuters poll.

Governor Perry Warjiyo said the decision was consistent with expectations that inflation would stay low and the rupiah stable, but he signalled it could be BIs last cut. The room (for a further cut) is getting more limited, but this does not mean BI does not have other options. We have quantitative easing, macroprudential easing and payment system digitalisation, Warjiyo told a virtual briefing.

The central bank revised down its 2021 economic growth outlook to 4.3% to 5.3%, down from 4.8% to 5.8% previously, noting a weaker-than-expected gross domestic product in the fourth quarter. Southeast Asias largest economy fell into recession for the first time in over two decades last year as Indonesia struggled to contain the coronavirus, grappling with the highest caseload and COVID-19 deaths in the region.

Source: Reuter. 2021. Indonesia central bank cuts rates, eases lending rules to boost coronavirus-hit economy, viewed 17 July 2021 .

1. Evaluate the effectiveness of interest rate cutting by Indonesia central bank in stimulating the economy. (4 marks)
2. Analyse the impact of Indonesian expansionary monetary policy through bank lending channel and wealth effect channel. (6 marks)
3. Would the two channels of monetary transmission mechanism in part (ii) work in Indonesia during the pandemic recession? (6 marks)