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UPDATE 2-Indonesia c.bank cuts rates, eases lending rules to boost coronavirus-hit economy

* Benchmark rate cut 25 basis points to 3.50%, as expected

* C.bank gov says move consistent with low inflation outlook

* Relaxes downpayment rules for vehicle loans, mortgages

* Revises down 2021 GDP growth outlook to 4.3%-5.3% from 4.8%-5.8% (Adds details, economist comments)

JAKARTA, Feb 18 (Reuters) - Indonesia’s 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 BI’s 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 Asia’s 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.

Warjiyo also said BI would remove a downpayment requirement for vehicle loans and some mortgages from March to December, after the government announced a tax break for sales of some cars last week.

The main stock index erased earlier gains to trade down 0.4% after the announcement, while the rupiah, which BI said was undervalued, remained unchanged.

“Our assessment is that BI’s rate cutting cycle is now over. With U.S. yields on the rise, BI has less leeway to trim its policy rate without undermining the relative yields of domestic financial assets,” said ANZ analysts in a note.

Faisal Rachman, an economist at Bank Mandiri, predicted Thursday’s cut to be the last in this cycle, but he expected more coordinated moves between BI and fiscal policymakers.

The government has increased the budget for its economic recovery programmes several times this year, with the latest figure of 688.3 trillion rupiah ($49.13 billion) nearly doubling the initial budget.

BI’s governor also warned he would name banks that did not lower lending rates, as the transmission of past easing to banking rates had been slow, especially among state banks. He cut the 2021 lending growth target to between 5% to 7%, from 7% to 9% previously.

The economy shrank 2.07% in 2020, its first full-year contraction since the Asian financial crisis in 1998.

The slump came even as the central bank last year delivered five rate cuts, totalling 125 basis points, and pumped some $50 billion worth of liquidity into the financial system.

A rebound in 2021 will rely on the success of Indonesia’s mass inoculation programme which kicked off in January.

The government began vaccinating traders in marketplaces this week, and is considering allowing companies to procure vaccines to inject their staff, which business groups say could accelerate a return to normal operations. ($1 = 14,010.0000 rupiah) (Reporting by Gayatri Suroyo, Fransiska Nangoy and Tabita Diela; Editing by Ed Davies and Ana Nicolaci da Costa)

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