In Indonesia, loan growth slowed to 8% y/y in February, the slowest since 2009, while growth in M2 money supply also dropped in the month to 7.2%, slowest in over one decade. According to a DBS Bank report, the possibility of Indonesia’s economic growth returning to the 5% territory in 2016 depends on solid investment growth, where banking sector is likely to have an active role. However, data in 2016 has been of a concern.
Since the end of 2015, Indonesia’s central bank has been aggressively easing its policy. Therefore, it is not much of a surprise if certain officials in the government are anxious regarding the continuous moderate growth in loan, added DBS Bank.
Without the strict action of keeping a lid on lending rates, the government cannot do much to accelerate loan growth in 2016, noted DBS Bank. Acceleration of capex spending will surely help in 2016. Meanwhile, constant moral suasion on banks to cut lending rates is expected, said DBS Bank.
“Expect loan growth to tick up higher in 2H16, although we reckon that the central bank’s 14-15% year-end target looks to be quite a stretch”, according to DBS Bank.
Bank Indonesia, in its previous policy meeting highlighted its transmission to concentrate on bolstering its monetary policy’s operational framework. Clearly the central bank appears keen to wait and observe the effect of its latest easing of policy before taking a decision regarding its next move, added DBS Bank.
