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Ensuring stability, growth amid rising external risks
Indonesia’s economic fundamentals remain robust with growth projected to continue picking up in 2018.
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The central government has decided to put some infrastructure projects on hold as the rupiah’s depreciation continues. (The Jakarta Post/Jerry Adiguna )
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ndonesia’s economic fundamentals remain robust with growth projected to continue picking up in 2018, according to the “2018 Annual Consultation Report on Indonesia” published by the ASEAN+3 Macroeconomic Research Office (AMRO) on Tuesday.
Real gross domestic product (GDP) growth is projected to pick up to 5.2 percent in 2018 with continued support from infrastructure investment and strengthened consumption. Inflation is expected to remain within the target band of 3.5 ± 1 percent, as the impact of rising global oil prices would be mitigated by the authorities’ measures to control inflation.
The external position came under pressure in the first half of 2018 amid capital outflows that reflected investors’ risk aversion towards emerging markets. To reduce excessive volatility in the rupiah exchange rate, Bank Indonesia (BI) had intervened in the markets, resulting in a decline of official foreign reserves, which remained adequate at US$118.3 billion at end-July 2018. BI also raised its policy rates five times between May and September 2018 by a total of 150 basis points to 5.75 percent.
Financial markets have responded positively to these “pre-emptive, ahead of the curve, and front-loading” policy actions, as foreign investors have returned to Indonesian markets from July 2018. To offset the negative impact of those rate hikes on domestic credit and growth, BI has eased macroprudential policies to support the housing market.
