Bank Indonesia (BI), which cut its rate by 25 basis points in February, said there is a risk that the economy this year will grow slower than expected and expand in the lower end of the targeted 5.4 to 5.8 percent range, with the outcome determined by the realization of government infrastructure projects along with consumption and an expected gradual improvement in exports.
In February the BI forecast growth of 5.4-5.8 percent this year, up from 2014's 5.1 percent.
Liquidity in the banking sector in February was more than sufficient, BI said, noting an acceleration in deposit growth to an annual 15.2 percent from 14.2 percent the previous month and credit growth is expected to increase from the second quarter in line with improved economic activity and adequate banking liquidity.
A more accommodative macroprudential policy will comprise an expansion of the deposit definition by including securities in the liquidity calculation and providing incentives to banks who meet the required lending to small and medium-sized businesses by relaxing the upper threshold for calculating liquidity.
Indonesia's economic growth in the first quarter was "moderate," as investment and exports point to a slowdown while consumption remains strong. But BI expects growth to rebound in the second quarter, helped by growing government expenditure. Exports, however, continue to contract in line with low commodity prices and sluggish global demand, particularly for manufactured products.
Investments have also been stifled but should pick up in the second quarter and government spying on infrastructure projects spikes, BI said.
Consumer price inflation in March rose to 6.38 percent from 6.29 percent due to higher administered prices, and is above the BI's target of 4.0 percent, plus/minus one percentage point.
"Bank Indonesia will continue to monitor inflation risks, particularly the global oil prices, the rupiah depreciation effect, potential administered price corrections and food supply," BI said.
Bank Indonesia issued the following statement: