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UPDATE 1-Indonesia c.bank sees room for rate cuts amid slower than expected recovery

* 2020 GDP -2.07%

* BI cut interest rates by 125 bps in 2020 (Adds quotes, context)

JAKARTA, Feb 9 (Reuters) - Indonesia’s central bank governor Perry Warjiyo said on Tuesday there was room to cut interest rates further to support Southeast Asia’s biggest economy after a slower than expected pace of recovery.

His comments came after data last week showed that the economy posted its first full-year contraction since 1998 last year, of 2.07%, with gross domestic product down 2.19% on an annual basis in the fourth quarter, as the pandemic hit private consumption and investment.

“To be honest this was below what we had expected,” the Bank Indonesia (BI) governor told a hearing with parliament’s finance committee.

“The direction showed an improvement, but it wasn’t as fast as we expected.”

BI last year cut rates five times by a total of 125 basis points to help the economy weather the impact of the coronavirus pandemic.

The central bank also pumped some $50 billion of liquidity into financial markets, including by buying government bonds directly, in what Warjiyo said amounted to one of the biggest quantitative easing programmes among emerging markets.

The government has also boosted spending to provide fiscal stimulus, with the 2020 fiscal deficit estimate of 6.09% the widest in decades.

BI would continue to use all its instruments to accelerate economic recovery, Warjiyo said, although he cautioned that the pace would also depend on the success of the government’s COVID-19 vaccination campaign, which started last month.

“If we’re asked whether we have room for a further reduction of interest rates, we have such room,” said Warjiyo.

“But of course we will look at all possibilities as well as maintain stability, especially exchange rate stability, and how we can more effectively help the economy recovery,” he added.

BI’s next policy meeting is scheduled on Feb. 17 to 18. (Reporting by Gayatri Suroyo and Tabita Diela Editing by Ed Davies)

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