Bank Indonesia Keeps Benchmark Rate, Says Worst Time Has Passed
Jakarta. Bank Indonesia, the country's central bank, has kept its benchmark interest rate at 5 percent for the third consecutive month on Thursday, saying there are signs that the largest economy in Southeast Asia may have seen the worst of its recent slow economic growth.
The central bank cut the benchmark rate four times last year to kickstart the economy, which had slowed from a decline in export and domestic demand.
Tame inflation last year, the lowest Indonesia had seen in two decades, also provided ample room for the central bank to maintain a dovish stance.
"In Indonesia, the economic cycle has passed its lowest point and is continuing to improve," Bank Indonesia governor Perry Warjiyo said on Thursday.
Perry said global economic growth would accelerate from 3.1 percent in 2019 to 3.2 percent this year, providing a case for a pickup in demand for Indonesia's manufactured goods and commodity exports.
The central bank now expects Indonesia's economic growth would pick up from slightly above 5 percent last year to between 5.1 percent and 5.5 percent in 2020.
"Commodity prices in 2020 will be better than last year, as will the inflow of foreign capital, which was already quite large in 2019. These are all positive factors driving the progress in our economic cycle. But it will not reach its peak [any time soon]," Perry said.
Consumption and infrastructure investment, the two main factors that drive domestic demand, also continue to grow, according to Perry.
"Non-construction investment continues to increase as businesses become more confident, thanks to the steps the government has taken to encourage investment, including the work it has done on the job creation omnibus law," he said.
The veteran central banker said the financial sector is now catching up. Bank Indonesia expects loan growth this year to be around 10 percent to 12 percent, way up from just 6 percent last year.
"In the next two years, lending will grow higher in response to the higher economic growth," Perry said.Tags: