Indonesia downgrades 2012 growth forecast to 6.1-6.5%

The ongoing Eurozone crisis prompted Bank of Indonesia to make downward revision.

OSK-DMG said that the BI downgraded its 2012 economic growth forecast to 6.1-6.5% from 6.3-6.7% previously. The downward revision was due to weaker external performance as a result of the ongoing crisis in the Eurozone and fragility of the US economy, which we had already taken into account in our forecast.

Here's more from OSK-DMG:

For 2013, the BI expects real GDP to expand by 6.3-6.7%. In the near term, the BI expects the economy to grow by 6.3% in 3Q on the back of continued strength in domestic demand. According to BI during its conference call with investors following the release of the monetary policy decision, private consumption is expected to rise by 4.9% and investment by 9.4%, while exports should grow by 7.0% and imports by 8.2%.

The protracted Eurozone crisis has left an inedible mark on the Indonesian currency with the rupiah weakening 4.2% vis-à-vis the US dollar year-to-date. This makes the rupiah the one of the worst performing Asian currency this year. A weaker rupiah has implications for the economy as higher imported prices of goods and services, especially oil and gas, could add to inflation this year. However, even though inflation should remain elevated this year, a rate hike to temper inflationary pressure is unlikely given the uncertain global environment.

At the same time, a rate cut to support domestic growth should the global economic and financial environment deteriorates is also unlikely given the weak rupiah, and the fact that the policy rate had already been cut by a total of 100 bps at the end of last year and beginning of this year.