Economic Growth and Tight Monetary Policy

By | May 11, 2014

The government cut economic growth targets from a range of 5.7 to 6 percent to 5.5 percent this year . An economist from the University of Indonesia , Lana Soelistianingsih , said one cause of the drop in the economic growth is slowing credit growth due to tight monetary policy of .

” If the government calls the economic slowdown as exports slumped , I guess this is more due to the slowdown of credit , ” Lana said when contacted by Tempo , Saturday, May 10, 2014 . ( Read : Why BI Maintain Tight Monetary Policy ? ) According to Lana , slowing enough credit plays a major role in the decline in economic growth in the first quarter , reaching only 5.21 percent . He asked the government began to consider a tighter monetary policy in the second half to re-boost the growth of .

As is known , Bank Indonesia still maintains tight monetary by not lowering its benchmark interest rate ( BI Rate ) of 7.5 percent position . According to BI , the policy is consistent with efforts to steer inflation toward the target to 4.5 plus or minus 1 percent in 2014 and 4 plus or minus 1 percent in 2015 . Moreover , the policy is also to reduce the current account deficit to a more healthy level .

” But of course first have to see the condition of the current account deficit . If after the second quarter improved , I think it can be done easing , ” he said . Lana is optimistic that the current account deficit target this year to 2.5 percent in bawaj . ” Actually getting better . Hopefully below 2.5 percent . “

Based on Bank Indonesia report by , the current account deficit in the first quarter of 2014 has begun to show improvement , which is down from U.S. $ 4.3 billion ( 2.12 percent of Gross Domestic Product ) in the fourth quarter of 2013 to U.S. $ 4.2 billion ( 2.06 percent ) in the first quarter of 2014. improvement comes from the reduction in imports . In addition , the services and income account deficit also fell .

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