Excerpt from the statement by the Bank Indonesia:
The current policy rate is considered consistent with inflation target range of 4.5%±1% in 2013 and 2014. Observed rising short term inflation pressure of food prices (volatile foods) recently and continued pressure on the external balance, Bank Indonesia will strengthen monetary operations through increasing the absorption of excess liquidity into long-term tenor. Bank Indonesia stays vigilant on various risks of inflationary pressure and will adjust monetary policy response as needed. Exchange rate stabilization policy in line with its fundamentals that have been done will be continued, strengthened by accelerating efforts to deepen the foreign exchange market. Bank Indonesia also strengthen coordination with the Government to focus on cutting down the current account deficit and minimize the potential for inflationary pressure from volatile foods, including horticulture import policy.
Indonesia's economic growth in 2013 is expected to arrive at 6.2%-6.6% lower than previous forecast 6.3%-6.8%. In the Q2-2013, economic growth is forecasted to reach 6.2%, relatively equal to previous quarter. Domestic demand is still growing quite strongly, although moderated, amid economic growth amelioration in the external side. Strong private consumption supported by improved purchasing power and consumer confidence. Meanwhile, in the midst of strong construction investment, non-construction investment tends to slow down. On the other hand, the export volume has increased in line with economic recovery in some of the major trading partner countries, especially China.
Externally, Indonesia's balance of payments (BOP) in the Q2-2013 is forecasted to post a lower deficit than the previous quarter due to improvement in the capital and financial account (TMF). The improvement was primarily driven by increasing portfolio investment, including global bonds issuance by the Government, in line with strong economic fundamentals and the impact of global economic policy that is still accommodative. However, the current account deficit is expected to increase mainly because imports are still quite high, partly linked to high fuel consumption.
The exchange rate of rupiah underwent depreciation pressure in the Q1-2013, though more moderate in line with continued capital inflows.
Going forward, taking into account the condition of balance of payments in the Q2-2013, exchange rate depreciation pressure is also expected to moderate.
The fluctuation in the volatile food prices led to a high CPI inflation in March 2013.
Going forward, inflationary pressures are expected to subside in line with government measures to overcome food supply disruption and the arrival of the harvest season.