BI Predicts 5 Percent Growth in Consumption as Interest Rates Fall

KATADATA - Bank Indonesia has predicted household consumption will grow by 5 percent in the first quarter of the year, after the central bank lowered its interest rate and the bank reserve requirement. 

For the second time at the start of this year, BI cut its rate by 25 basis points to 7 percent. This month, BI has also cut the rupiah primary reserve requirement by 1 percent to 6.5 percent. This policy comes into effect on 16 March, and is forecast to boost bank liquidity by IDR 34 trillion. So the central bank hopes banks in Indonesia will be able to cut their deposit and loan interest rates. 

BI Executive Director for Economic and Monetary Policy, Juda Agung, said this step is necessary to increase people’s consumption capacity, especially in the property and vehicle sectors. Juda is confident household consumption will grow by 5 percent – higher than the fourth quarter of last year. Josua Pardede, an economist at Bank Permata, echoed Juda’s words.

Senior economist at the Kenta Institute, Eric Sugandi, predicted that household consumption might increase by 5 to 5.3 percent by the end of the year, due to increased consumption capacity, controlled inflation, and increased economic activity. Inflation is predicted to improve thanks to lower fuel prices and a stronger rupiah. Government measures to boost infrastructure development will also contribute improving the economy. 

Finance Minister Bambang Brodjonegoro said the policy will boost economic growth even more, and predicted that economic growth this year might even reach 5.5 percent, because the fall in BI rate will spur household consumption and investment.