Jakarta – The central bank, Bank Indonesia (BI), has predicted that the country's economy will, in the first quarter of the year, grow by 4.2 percent to 4.7 percent on the back of low inflation, the stable rupiah exchange rate and declining bank interest rates.

However, economic growth will still rely on consumption, despite an increase in export revenues and flow of investment, deputy head of the central bank communications bureau Rizal A Djaafara said on Wednesday when announcing the results of a meeting of the BI board of governors.

The increased consumption is the result of higher real income of households brought about by lower inflation, higher consumption credit growth, consumer confidence index and consumer tendency index.

There is still room for bank interest rates to go down, albeit at a slower pace, he said.

The bank noted that the rupiah exchange rate, currently ranging from Rp 8,300 to Rp 8,500 per dollar, is relatively stable as a result of a strengthening of world currencies against the US dollar following a meeting of the Group of Seven (G-7) developed countries, positive macroeconomic fundamentals and a flow of short-term foreign exchange into the domestic money market.

The Consumer Price Index (IHK) has fallen, with deflation recorded at 0.02 percent in February, bringing the country's annual deflation rate to 4.6 percent.

"The lower inflation rate and stable rupiah have given the interest rate more room to fall," Rizal said.

In February, the interest rate on Bank Indonesia short-term promissory notes (SBI) for one-month deposits and three-month deposits fell 38 basis points to 7.48 percent and 45 basis points to 7.70 percent, respectively.