Indonesia’s Q3 GDP slows after rate hikes and lower commodity prices

JAKARTA - As expected, Indonesia’s Q3 GDP growth slowed - for a fifth consecutive quarter. Q3 GDP growth came in at 5.6% y/y (consensus: 5.6% compared to 5.8% in Q2. The outturn was broadly in line with expectations, which had factored in the impact of recent interest rate hikes on consumer and business spending, as well as the drag from lower commodity prices (Indonesia is a commodity producer).

Bank Indonesia lifted interest rates by a cumulative 150 basis points between June-September to counter a burst in inflation after an administered fuel price increase last June, and more recently to stem external pressures brought on by a widening current account deficit and expectations of QE tapering by the Fed. The delay in QE tapering, and measures to stem the current account deficit (including BI’s rate hikes), have helped reduce external pressures, and the rupiah has stabilised at around 11,500 per USD, still well below the level of 9,700 that prevailed earlier in the year. BBVA Bank says it expects growth to slow further in Q4, before rebounding, with full year GDP coming in at around 5.6% in both 2013 and 2014. www.bbvaresearch.com (ATI).