Indonesia: BI expects muted inflation, looks to ‘nudge demand, growth’

  • Bank Indonesia (BI) has lowered its economic growth forecast for 2021 to 3.8%, maintaining its expectation for tame inflation following the introduction of COVID-19 mobility restrictions.
  • The central bank’s previous GDP growth projection for 2021 was between 4.1% and 5.1% with a median estimate of 4.6%, as the country was poised for a rebound before the second wave of COVID-19 and the attendant emergency public activity restrictions (PPKM Darurat).
  • “Our initial assessment shows that, if the PPKM Darurat lasts for a month and is able to curb COVID-19, economic growth will fall to around 3.8%,” BI Governor Perry Warjiyo told a House of Representatives hearing.
  • The central bank’s downward revision comes after a similar move earlier by the government, which revised down its economic growth forecast to between 3.7% and 4.5% from 4.5% to 5.3%.
  • The downgrades came as the emergency restrictions were enforced from 3-20 Jul 21 across Java and Bali. The tighter restrictions were also applied to several other regions that recorded an increase in infections, supply and capacity shortages at hospitals and met other parameters in recent days.
  • BI also expected inflation to hover at between 2% and 4% as consumer prices remained muted.

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