Several recent developments that could change the direction of Bank Indonesia policy have been visible since last month. The dismal Q2 growth and credit growth results point to sluggish growth and weak domestic demand which has typically been a driver of growth in the past. This increases the risk of inflation being too low and leaving GDP growth below target, especially as the impact of rising electricity prices may have been fully reflected in current price levels. As a result, Bank Indonesia needs to start loosening monetary policy again, either through cutting interest rates or using other means, if currency fluctuations are still a major concern.
