* Policy rate on hold at 7.50 pct as widely expected
* FASBI and lending rate also unchanged
* C.bank cuts 2014 GDP to 5.1-5.5 pct from 5.5-5.9 pct
* Inflation target unchanged at 3.5-5.5 pct in 2014 - c.bank
(Recasts, adds comments from central bank)
By Adriana Nina Kusuma and Rieka Rahadiana
JAKARTA, May 8 Indonesia's central bank on
Thursday slashed its economic growth outlook this year to the
weakest level since the 2009 global financial crisis, due to a
drop in commodity exports.
Bank Indonesia also left its policy rate unchanged for the
sixth straight meeting, which was widely anticipated, but warned
the current-account gap would widen in the coming quarters as
exports contract from the effects of a mineral export ban.
The ban along with successive hikes in interest rates to
shrink the current-account deficit caused growth in Southeast
Asia's largest economy to drop to its weakest in more than four
years in the first quarter.
The central bank's aggressive tightening steps last year,
however, halted a widening in the current-account gap, dampened
inflationary pressures and returned confidence to the rupiah.
Analysts say improved fundamentals will likely put the
economy on sufficiently solid ground to defend against capital
flows as the Federal Reserve winds down stimulus and ahead of an
anticipated rise in U.S. interest rates.
All 15 analysts in a Reuters poll had unanimously expected
the benchmark reference rate to be left unchanged at 7.50
percent, as pressures had eased. The rupiah is now Asia's best
performing currency, up 4.9 percent against the dollar so far
Bank Indonesia also kept the deposit facility rate (FASBI)
and lending facility rate at 5.75 percent and 7.50 percent,
The recovery in fundamentals suggests BI will likely put off
further policy tightening, and give more time to the series of
rate hikes implemented last year to filter through the economy.
The central bank had kept the benchmark rate unchanged since
December, after raising them a total of 175 basis points between
June and November to calm anxious investors and stem a sell-off
in Indonesian assets.
"This decision is affirming BI's stances. The bank will
watch the external factors and fiscal policy of the new
government at the end of the year. But for now, they are
watching the current-account deficit," said David Sumual,
economist at Bank Central Asia in Jakarta.
The Philippine central bank kept rates unchanged but raised
banks' reserve requirements on Thursday, while Malaysia's
central bank also kept rates on hold at its meeting.
PRIORITY ON DEFICIT
Indonesia's current-account deficit narrowed slightly in the
first quarter to 2.06 percent of GDP but will increase further
in the second and third quarters because of seasonal factors,
the central bank said. That was marginally lower than the
revised 2.12 percent deficit of the previous quarter but was
around Bank Indonesia's estimate of around 2 percent.
The current account - the widest measure of the flow of
goods, services and money in and out of the country - is
estimated at below 3 percent of GDP for the full year, down from
3.3 percent in 2013.
The government has said its priority is to shrink the
current-account deficit even at the expense of growth. To
achieve this, analysts say policy will likely be kept tight.
"If it relinquishes the tight bias, it may fan consumption
growth further and risks another bump in imports, which might
well undo whatever reduction in current-account gap it has
achieved thus far," Wellian Wiranto, economist with OCBC Bank,
said in a research report.
The central bank, blaming weak exports, cut full-year gross
domestic product growth to 5.1-5.5 percent from its previous
estimate of 5.5-5.9 percent.
It sharply cut its export growth forecast to 1.5-1.9 percent
this year from a previous estimate of 8.1-8.5 percent, due to
the ban on mineral ore shipments and declining commodity prices.
"The contraction in real exports was mainly due to a decline
in mining exports such as coal and mineral concentrate, partly
due to weakening demand from China and declining prices," the
central bank said in a statement.
Improvements in economic fundamentals will remain volatile
amid patchy global demand and strong consumption. There is also
the possibility of fuel price increases next year adding to
Domestic consumption, which contributes more than 50 percent
of the economy, stayed resilient in the first quarter partly on
pre-election spending in April and ahead of presidential
elections in July.
(Additional reporting by Nilufar Rizki and Randy Fabi; Editing
by Jacqueline Wong)