REPUBLIKA.CO.ID, BANDUNG - Bank credit grew 26 percent in April year-on-year (yoy), beating earlier estimates of 23-24 percent. Indonesian central bank (BI) deputy governor, Halim Alamsyah, said on Monday that such growth indicated that the domestic economy was doing well.

"The growth is driven more by credits for working capital and investment, while consumption credits are slowing. This is healthy. It shows that domestic economy is quite strong," he stated.

Halim said that if the economy remained stable, bank credits would likely continue to grow up to 24-25 percent until the end of the year, which would achieve the bank's business objectives for 2012.

Regarding the country`s economic growth in the first quarter reported at 6.3 percent by the National Statistics Agency, Halim said the decline in growth was mainly because of a slowing global economy after the European economic crisis that was not over yet. Halim predicted that the economy could still grow by 6.3--6.5 percent in the second quarter, depending on the government`s fuel policy.

"By the end of the year it will also depend upon the government's fuel policy. If the fuel price is raised, the inflation rate would increase and consequently burden people with fixed income, whose buying power will drop. However, if the government could give a stimulus, we would be able to maintain the growth at 6.3 to 6.5 percent," he said.

Considering the possibility of a rise in inflation expectations due to uncertainties regarding the government`s fuel policy, Halim said Bank Indonesia as the central bank, had already raised the interest rates of its three- and nine-month monetary instruments.

"So long as it is possible to do, we will do it. The rates of monetary instruments like term and facility deposits are already moving up," he added.

According to Halim, inflation must be controlled consistently through various measures, such as by raising monetary rates to assure that inflation expectations will not rise. Bank Indonesia has declared that the banking system is stable and its intermediary functions have improved to support economic funding.

The country`s banking industry has become more solid as reflected by the capital adequacy ratio, which is well above 8 percent, while non-performing loans are below 5 percent. "The banks` intermediary functions have also improved, which is proven by credit growth that reached 24.2 percent by the end of February," Halim noted.

He added that investment credits also grew by 33.2 percent year-on-year, which was likely to enhance the country's economic capacity. "Credits for working capital and consumption grew 23.4 percent and 19.6 percent, respectively, year-on-year," Halim said.

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