However, growth is expected to accelerate in the second quarter, supported by stronger investment and exports while consumption would be stable. Rising commodity prices and stronger external demand would help drive exports and investment, Bank Indonesia (BI) said.
Last month BI forecast economic growth this year of 5.0 to 5.4 percent, up from 5.02 percent in 2016 and 4.88 percent in 2015 on stronger private consumption, rising exports, higher government spending and improve private and government investment.
Economic activity in Indonesia slowed in the fourth quarter of last year as consumer spending eased along with government spending while exports and investments rose. On a quarterly basis, Gross Domestic Product shrank by 1.77 percent from the third quarter while on an annual basis GDP rose by 4.94 percent, down from 5.01 percent in the third quarter.
BI cut its 7 day RR rate twice last year by a total of 50 basis points following four cuts in its previous benchmark rate by a total of 100 points from January through June.
As in its March statement, BI said global economic growth is expected to continue to improve although it was keeping a close eye on a number of risks, such as inflationary pressure in developed countries, which could trigger tighter monetary policy, higher U.S. interest rates and asset sales that could boost the U.S. dollar and thus the cost borrowing, geopolitical risks in Europe "related to the strengthening of the wave of populism," U.K. talks about leaving the EU, and Greek debt talks.Indonesia's inflation rate eased to a lower-than-expected 3.61 percent in March from 3.83 percent in February due to higher supply of food while administered prices declined due to lower airfares that helped reduce the impact of higher electricity rates.
Indonesia's rupiah has been firm this year and was trading at 13,327 to the U.S. dollar today, up 1.3 percent since the start of this year.
BI said appreciation of the rupiah was supported by macroeconomic stability and investors' positive view of the country's economic outlook coupled with easing global risks. This lead to an influx of non-resident capital to Indonesian stocks and government debt.
Bank Indonesia issued the following statement: