Bank Indonesia: GDP Growth to Accelerate Slightly in Q2-2016
The central bank of Indonesia (Bank Indonesia) expects Indonesia's economic growth in the second quarter of 2016 to improve slightly to 4.9 - 5.0 percent (y/y) compared to the 4.92 percent (y/y) GDP growth realization in the first quarter of the year. Regarding growth in full-year 2016, Bank Indonesia remains optimistic that a 5.4 percent growth pace can be achieved supported by a looser monetary policy (that should boost demand for credit). Bank Indonesia cut its key interest rate (BI rate) by 0.25 percentage point to 6.50 percent in the June policy meeting.
Moreover, Bank Indonesia also decided to cut the required down payment for the purchase of a house. Effective per August 2016, Indonesian home buyers will only have to cover a down payment of 15 percent for the first house, 20 percent for the second house, and 25 percent for the third house (all are five percent lower compared to the current down payment requirements). This higher loan-to-value (LTV) ratio aims to boost credit growth in Southeast Asia's largest economy. The property sector is one of the many sectors in Indonesia that can be labelled "sluggish". These new and easier down payment requirements are expected to boost demand for property.
To safeguard financial stability, Bank Indonesia decided that only those banks that have non-performing mortgages and gross non-performing loans (NPLs) less than 5 percent can offer mortgages to home buyers.
Bank Indonesia also raised the minimum loan-to-funding ratio to 80 percent, from 78 percent previously, in an effort to spur lending (also effective per August 2016).
Juda Agung, Executive Director at the Economic and Monetary Policy Department of Bank Indonesia, said Indonesia's GDP growth is estimated to accelerate in Q2-2016 (compared to the preceding quarter) but not as sharply as initially expected because the nation's retail sales remained sluggish while few imports of heavy equipment and few sales of industrial land indicate that investment has also remained bleak so far this year. Meanwhile, credit growth eased to 8 percent in April 2016 (in recent history Indonesia had become used to double-digit credit growth). It remains to be seen whether credit growth can indeed rise. Although there is enough credit on the supply side, demand for credit remains low as investors are still in a wait and see-mode because Indonesia's purchasing power has not improved markedly yet.
Darmin Nasution, Indonesia's Chief Economics Minister, is slightly more optimistic about Q2-2016 GDP growth, saying it could touch 5.1 percent (y/y) supported by the harvest season that fell in the second quarter this year instead of the first quarter (March). Bank Indonesia's successful efforts to stabilize inflation and push down lending rates have also impacted positively on Indonesians' capacity to consume, he added.
Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV||Full-Year|
Source: Statistics Indonesia (BPS)
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