REPUBLIKA.CO, Id JAKARTA - Bank Indonesia on Thursday slashed its economic growth outlook this year to the weakest level since the 2009 global financial crisis, due to a drop in commodity exports.
The central bank also left its policy rate unchanged for the sixth straight meeting, which was widely anticipated, but warned the current-account gap would widen in the coming quarters as exports contract from the effects of a mineral export ban.
The ban along with successive hikes in interest rates to shrink the current-account deficit caused growth in Southeast Asia's largest economy to drop to its weakest in more than four years in the first quarter. The central bank's aggressive tightening steps last year, however, halted a widening in the current-account gap, dampened inflationary pressures and returned confidence to the rupiah.
Analysts say improved fundamentals will likely put the economy on sufficiently solid ground to defend against capital flows as the Federal Reserve winds down stimulus and ahead of an anticipated rise in US interest rates.
All 15 analysts in a Reuters poll had unanimously expected the benchmark reference rate to be left unchanged at 7.50 percent, as pressures had eased. The rupiah is now Asia's best performing currency, up 4.9 percent against the dollar so far this year.
Bank Indonesia also kept the deposit facility rate (FASBI) and lending facility rate at 5.75 percent and 7.50 percent, respectively. The recovery in fundamentals suggests BI will likely put off further policy tightening, and give more time to the series of rate hikes implemented last year to filter through the economy.
The central bank had kept the benchmark rate unchanged since December, after raising them a total of 175 basis points between June and November to calm anxious investors and stem a sell-off iIndonesian assets.
Indonesia's current-account deficit narrowed slightly in the first quarter to 2.06 percent of GDP but will increase further in the second and third quarters because of seasonal factors, the central bank said. That was marginally lower than the revised 2.12 percent deficit of the previous quarter but was around Bank Indonesia's estimate of around 2 percent.
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