After the unexpected increase in the inflation rate last month, new economic indicators announced by Bank Indonesia (BI) on Friday show that Indonesia still has a long way to go to resolve its economic problems.

According to the latest data issued by the central bank, Indonesia'€™s foreign exchange (FX) reserves fell to US$110.8 billion in May, the third decline recorded so far this year.

The first decline occurred in March, when reserves dropped to $111.6 billion from $115.5 billion in February. The reserves were drained again in April to $110.9 billion.

In a statement, BI attributed the fall in the FX reserves to an increase in the demand for foreign currencies, especially the US dollar, for the government'€™s offshore debt payments and the need to use FX to stabilize the rupiah, which has been under pressure since the start of the year.

Despite the fall, BI said that the existing FX reserves figure were enough to finance 7.1 months of imports or 6.8 months of imports and the government'€™s offshore debt payment. The level of FX reserves is higher than the international standard of three months of imports'€™ worth.

Earlier, the Central Statistics Agency (BPS) announced that Indonesia'€™s annual inflation rate in May had risen to 7.15 percent, the highest level this year. The rise in inflation could diminish the chance for the central bank to lower its benchmark interest rate, a monetary move that would benefit the economy.

BI deputy governor Halim Alamsyah acknowledged that the sentiment against the rupiah had soured in recent days. He attributed this to the global situation, including uncertainty surrounding the US Federal Reserve'€™s policy rate and Greece'€™s debt crisis.

'€œIn May, we also saw higher FX needs to meet debt repayment. We will continue to monitor the rupiah'€™s movement, as well as the domestic and global situation,'€ he told reporters.

Meanwhile, commenting on the FX reserves, Bank Central Asia (BCA) economist David Sumual said that the latest figures reflected a major dilemma, as there were simply not enough FX reserves in the market.

The government'€™s decision to frontload its global bond and sukuk issuance had helped ease the problem, he said, but that alone was not enough. '€œIn addition to regular debt repayment, FX needs to spike in the second quarter because of rising imports approaching the fasting month and Idul Fitri,'€ he said.

A day before the announcement, BI published its monthly statistics on money supply (M2), which showed a slowdown in bank lending growth during the first four months of the year. In April, the total amount of loans provided by the country'€™s banks stood at Rp 3.75 quadrillion ($282.01 billion), rising 10.3 percent year-on-year (yoy) . The growth is lower than the 11.1 percent year-on-year recorded in the previous month.

According to Halim, the lower lending growth was caused by slowdown in the economy. '€œBank loans usually reflect economic slowdown. So in a situation like now when the economy is lagging, loans are lagging as well,'€ he said.

The statistics reveal that slowdown was recorded in the working capital loan and investment loan segments. Contrary to the overall credit downturn, property loans posted a slight increase, rising 16.9 percent yoy in April from 16.7 percent in March. By the end of April, outstanding property loans reached Rp 566.9 trillion. The central bank expected to see its upcoming loan-to-value policy revive the property segment, Halim said, but added that BI would probably revise its overall credit growth guideline for the rest of the year.

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