Bank Indonesia (BI), which cut its rate by 25 basis points in February, added that it would also continue to strengthen coordination with the government to control inflation and manage the current account deficit but also by accelerating fiscal stimulus to boost growth.
In April BI flagged it was planning a more accommodative macroprudential policy to ensure that 2015 banking deposits and credit would expand by 14-16 percent and 15-17 percent, respectively. Today BI said credit growth in March eased to an annual 11.3 percent from February's 12.2 percent but it was confident that it would reach its 15-17 percent target, partly due to loosened policy.
The central bank said it was backing the government's reforms to expedite infrastructure projects along with other structural policies that should help improve optimism.
BI did not provide any immediate details of the new macroprudential measures but said it would soon revise the LRD-RR policy and the Indonesia Financial Services Authority would revise the mortgage loan LTV and the downpayment conditions on car loans.
Indonesia's economic growth slowed sharply in the first quarter of 2015 with Gross Domestic Product shrinking by 0.18 percent from the fourth quarter for annual growth of 4.71 percent, down from 5.01 percent in the fourth quarter. Growth slowed due weak domestic demand, particularly government consumption and construction investment, BI said.
But BI expects growth will rebound in the second quarter as fiscal spending rebounds and noted that a key catalyst for growth this year is accelerated government spending at a time of slower than previously projected global economic growth due to weaker growth in China and the U.S., which has then "led to continued uncertainty in the Fed Fund Rate's timing and amount of raise, as well as pressures of capital reversals from the emerging markets."
Last month the BI said there was a risk the economy would grow lower than expected and in the lower end of the targeted 5.4 to 5.8 percent range.
But Indonesia's government of President Joko Widodo wants to boost growth toward 7 percent and earlier this month Vice President Jusuf Kalla said the country will gradually cut rates, a statement seen putting pressure on BI to cut rates. But BI Governor Agus Martowardojo countered hours after that the central bank would maintain a tight monetary stance to anchor inflation expectations and manage external pressures.
Indonesia's inflation rate rose to 6.79 percent in April from 6.38 percent the previous month, with BI attributing "escalating inflationary pressures" from administered prices while core inflation and volatile food prices were managed well.
Despite the rise in inflation, BI said "inflation was controlled in April," supporting its inflation target of 4.00 percent, plus/minus one percentage point, in 2015.
Bank Indonesia issued the following statement: