Indonesia’s CB trims GDP Projection on Subdued Economic Growth, Commodity Prices Disappoint

Bank Indonesia has revised the country’s economic growth projection for 2016, lowering its forecast of gross domestic product on subdued economic growth, low commodity prices and slightly disappointing Q1 GDP of the country.

The country’s central bank revised down its projection of economic growth in 2016 to the range of 5.0 - 5.4 pct (y/y), slightly below its previous forecast in the range of 5.2 - 5.6 pct (y/y). Indonesia's economic growth in the first quarter of 2016 was slightly disappointing at 4.92 pct (y/y).

palm oil product

Household consumption, which accounts for about 58 pct of total economic growth in Indonesia, remained subdued during Q1 2016. Meanwhile, non-government investments also went dark. The private sector is apparently hesitant to invest when household consumption remains subdued, reports said.

Despite global petroleum prices expected to remain low in the foreseeable future, Bank Indonesia Governor Agus Martowadojo said prices of several commodities have in fact increased in the past couple of months. Crude palm oil, a major exporting good of Indonesia made a remarkable comeback this year as output in Malaysia and Indonesia staggered on concerns of El-Nino and other weather related problems. However, Indonesia is expected to consume more crude palm oil due to the government's ambitious biodiesel program.

Further, at the May 18-19 policy meeting, the apex Bank of Indonesia decided to leave interest rate policy unchanged at 6.75 pct, the deposit facility at 4.75 pct, and the lending facility at 7.25 pct. Meanwhile, the seven-day reverse repurchase rate (reverse repo), which is set to become the central bank's new benchmark (replacing the existing BI rate) in August 2016, was left unchanged at 5.5 pct.


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