Will Indonesia central bank focus on the easing GDP growth momentum?

Consumption growth in the country remains resilient.

On Indonesia’s GDP growth front, consumption growth remains resilient, with private consumption growth is still trending at 5.5% pace, maintaining the pace in recent years.

According to a research note from DBS, it noted that it is still interesting, however, to monitor if BI will start to pay a little more attention to the easing GDP growth momentum.

The current GDP growth estimate is slightly weaker than the earlier projection by the central bank.

The report also noted that the main drag is on the investment front, which is partly an intended consequence of the tighter policy stance implemented since last year.

Here’s more from DBS:

On balance, the central bank is likely to maintain a cautious stance amidst the lingering external balance problem.

Ensuring that current account deficit is sustainable has been the key policy focus for BI. This is likely to remain the case towards the year-end.

Foreign reserves accumulation will continue. Given that the outlook on portfolio flows remains somewhat positive, there is a chance to see foreign reserves crossing the USD 110bn this year. This is in line with the central bank's policy stance to short up its defences amidst unpredictable financial market movement.

Expect no change to BI monetary policy stance this week. Indeed, the BI rate looks set to remain at 7.5% for a lot longer than some in the markets think.

CPI inflation might have slipped to 4% (YoY) in August but underlying inflations remains supported, reflected in the steady core inflation in recent months.

As far as Bank Indonesia (BI) is concerned, risks on inflation remain titled towards the upside. Talks of subsidized fuel price hike are likely to heat up towards the year-end.