Bank Indonesia holds rate steady, lowers 2016 GDP growth forecast

Indonesia Central Bank held its policy rate steady at its meeting on Thursday, in line with market expectations. Bank Indonesia also lowered its 2016 growth forecast to 5.0-5.4 pct from 5.2-5.6 pct previously.

BI scoured any further chance of an easing in the near term in its latest policy meet yesterday. It remains of the view that the policy loosening steps earlier this year will have a positive impact on GDP growth momentum towards the year-end. Further, the CB continues to suggest that a more effective fiscal policy implementation will provide a more significant boost to the GDP growth outlook, DBS reported.

However, it is largely dependent on the government execution of expenditure, whether the nation’s gross domestic product will reach 5.2 pct target or remain below the 5 pct level.

"As far as BI is concerned, we reckon that its job to boost the economy is done," DBS commented in a research report.

In fact, how markets moved yesterday might have led some in the central bank to reflect on its recent policy loosening steps. Managing the stability in the Indonesian rupiah may now be BI’s top priority besides, overtaking the need to boost short-term growth momentum.