EU crisis cuts Indonesia’s growth forecast
Jakarta , Nov 29
Bank Indonesia (BI) has revised down its forecast on the country`s economic growth to below 6.5 percent due to a worsening of the economic crisis in Europe.
"Following the decline in the global economy and in commodity prices, economic growth will tend to drop to below 6.5 percent while inflation in 2012 will also be lower than the forecasted 4.7 percent," the director of BI`s directorate of economic research and monetary policy, Perry Warjiyo, said here on Tuesday.
He said economic conditions in Europe were still uncertain so that the crisis was expected to still continue to make Bank Indonesia to prepare various policies to deal with its impact on the financial market.
"BI will make various adjustments through various policies based not only on the inflation forecast but also on developments in the economic crisis in Europe with regard to the foreign exchange rate, interest rate and capital inflows," he said.
The policies were expected to provide a monetary stimulus for the maintenance of economic growth as well as shield against the impact of the crisis.
Economic observer Tony A Prasetyantono had earlier said BI had been careless and ignored the worsening crisis in Europe by deciding to reduce its reference rate by 50 basis points early in November.
"The decision to lower the rate is based on inflation forecast of below 4.0 percent but not on the impact of the worsening crisis in Europe that will make investors leave Indonesia as have seen happening lately. BI has been careless because the timing to reduce the rate was not right," he said.
He said the lowering of the BI Rate by 50 basis points had made foreign investors leave Indonesia while the policy itself had not caused the lending rate to drop as BI had expected.
"Even interest rates on deposits have not gone down, much less the lending rates," he said.
Under such conditions Tony predicted BI would use more foreign exchange reserves to prevent the country`s rupiah currency from dropping further. "BI will bleed this week as its foreign exchange reserves will drop sharply," he said.