Farid Firdaus, Jakarta – The central bank has assured businesses that it is committed to deploying all monetary and macroprudential instruments at its disposal to maintain growth in the Indonesian economy, assuaging concerns that the country may slump next year due to recessions expected in some developed economies.
"Given that stability is now maintained, we can make sure that all our instruments are geared toward growth. Starting this year, all our instruments are pro-growth," Bank Indonesia Governor Perry Warjiyo told the chief executives of hundreds of listed companies during an event in Jakarta on Thursday to celebrate the anniversary of the Indonesia Stock Exchange.
The bank has cut its benchmark interest rate by 100 basis points over the past four months to 5 percent, in line with similar easing in many emerging markets to prop up growth amid a global economic slowdown.
The Organization for Economic Cooperation and Development (OECD) has cut its global growth projection to 2.9 percent this year, down from the previous estimate of 3.2 percent. The Indonesian economy is projected to grow at 5 percent both this year and next year.
However, Perry said Bank Indonesia and the government were now acting in concert to ensure that the economy grows at 5.1 percent this year and 5.3 percent next year.
"Our liquidity is more than enough. We have cut the liquidity requirement and keep pouring money into our monetary operation. We have stopped contracting liquidity; we are expanding it," he said.
The central bank loosened its liquidity requirement in September, aiming to increase lenders' capacity to disburse loans. David Sumual, an economist at Bank Central Asia – one of Indonesia's largest lenders – estimated earlier that this policy would free up about Rp 30 trillion ($2.14 billion) in fresh liquidity, which local banks can lend out to clients.
"We have also loosened our macroprudential policies. Last year, we lowered the requirement for housing down-payments. This year, we have cut it further and lowered the down-payment requirement for vehicle purchases," Perry said.
He said Bank Indonesia had also made some adjustments in the money market and in capital market to ensure that capital moves freely.
"I hope these factors will encourage banks to disburse credit and boost demand from businesses," Perry said.
Finance Minister Sri Mulyani Indrawati, who spoke at the same event, urged chief executives to adopt a more positive outlook on the Indonesian economy and to have more confidence to invest.
"Indonesia has grown at above 5 percent [annually] for the past 10 years. Although the global economy [is experiencing a slowdown], Indonesia can maintain growth of above 5 percent," Sri Mulyani said.
She added that the considerable size of the Indonesian economy provides some protection, as it allows the country to weather global uncertainty.