Roundup: Indonesian central bank spurs growth, resists rate cut

Indonesian central bank took some measures to accelerate economic growth, but refrained from cutting interest rate as it risks to the effort to ease high inflation and guard rupiah.

The pressure to lift the growth has mounted since the country witnessed gross domestic product expansion at the lowest level since 2009 in the first quarter, 4.71 percent, but already high inflation and weakening rupiah against the U.S. dollars amid U.S. Federal Reserve rate hike plan this year make it risky to cut the basic rate amid high current account gap.

Therefore the lender on Tuesday kept its benchmark interest rate unchanged at 7.5 percent and at the same time launched policies to ease the macro-prudential policies, including regulation on loan for homes and vehicle purchase, Agus Martowardojo, governor of the central bank said on Tuesday.

The bank also aimed to strengthen coordination with the government to speed up spending of development budget which had been stalled at the first three months through March, the bank said.

"Therefore the central bank supports government efforts to speed up realization of infrastructure projects and continue various structural policies to create optimism among investors on the prospect of Indonesian economic recovery," the bank said in the statement on Tuesday.

The central bank also kept the lending rate facility at 8 percent and deposit facility rate at 5.5 percent on Tuesday, said Martowardojo.

To lift growth through export and consumption seems difficult in the near term as the demand of the country's commodities export products remains subdued and inflation remain high ahead of Islamic holy fasting month of Ramadhan that falls at mid of next month, during which the demand of food and clothes regularly hikes in the country.

Household consumption, which is the biggest trigger of the growth at the country with over 250 million populations, contracted in April as high inflation erodes purchasing power.

Indonesia's export growth fell by 0.53 percent at the first quarter compared with the growth of 3.16 percent at the same period last year, according to the national statistic bureau.

The growth of household consumption scaled down to 5.01 percent at the first three months compared with 5.35 percent at the same period last year, it has said.

"For the next quarters, it seems hard to boost export (but) the government has to boost spending of the (development) budget through the infrastructure projects, along with boost in investment," Andry Asmoro, an analyst at Bank Mandiri, has told Xinhua.

Consumer prices index accelerated at a faster pace in April to 6.79 percent from 6.38 in March, according to the national statistics bureau.

Meanwhile, weakening rupiah against the U.S. dollar remains concerning as the bank struggles to narrow current account deficit gap.

Indonesia's current account has been in deficit for 14 quarters through end of first quarter this year amid fall of prices of Indonesia's commodities exports.

In 2014, the current account deficit was at 2.95 percent of the GDP and the gap reached 1.8 percent of GDP in the first quarter of this year, slightly higher than the central bank's estimation of 1. 6 percent of GDP.

"Maybe by seeing the inflation remain high (besides,) it is common in Indonesia inflation rises ahead of fasting month. So that there is a concern (of the lender) that people are reluctant to keep rupiah should its value be persistently eroded by inflation. The decision is expected to add supply of U.S. dollars at the market and strengthen rupiah," Farial Anwar, analyst from the Currency Management Group told Xinhua on by phone after the central bank announcement on Tuesday.

The analyst projected the central bank to keep its tight monetary policy by year in anticipating the possible capital outflows ahead of the U.S. Fed interest rate hike policy.

Indonesia's rupiah has weakened since last year and passed the psychological level of 13,000. In April, the currency weakened by 0.23 percent and it was traded by 13,183 per 1 U.S. dollar on Tuesday, according to the bureau and the central bank. Endi