Bank Indonesia predicts GDP to remain muted on weakness in household consumption

Bank Indonesia (BI), in its recent analysis of the Indonesian economy predicted growth to remain muted in the second quarter of this year, as household consumption spending has not improved markedly yet, as reflected by low demand for credit.

The central bank of Indonesia expects Indonesia's gross domestic product to reach between 4.9 and 5.0 percent y/y in the second quarter of 2016, only rising slightly from GDP growth realization of 4.92 percent in the first quarter.

Besides the subdued global outlook and sluggish domestic consumption, BI also detects weaker-than-estimated private investment in Indonesia. Private businesses have become more cautious due to uncertain economic environment and are, therefore, currently eager to focus on debt repayment rather than seeking new debt from creditors, reports said.

Moreover, the central bank had recently cut its benchmark interest rate from 7.50 percent to 6.50 percent. Furthermore, it set lower payment requirements for property purchases. The impact of this loose monetary policy is expected to be realized in the second hald of this year.

Meanwhile, the tax amnesty program released by the Bank Indonesia is estimated to bring home trillions of rupiah in funds. Capital inflows should manage to strengthen the rupiah and boost the nation's foreign exchange reserves. Also, the bank is expected to limit the strengthening rupiah in an attempt to boost the nation’s manufacturing exports.