Indonesia: Central bank expects higher GDP growth

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The Indonesian central bank's plan to ease mortgage rules would add marginally to economic growth this year, despite higher interest rates, a senior official said on Monday.
JULY 03, 2018 - 11:03 AM

[JAKARTA] The Indonesian central bank's plan to ease mortgage rules would add marginally to economic growth this year, despite higher interest rates, a senior official said on Monday.

"The property sector has a large multiplier effect," Filianingsih Hendarta, an assistant to BI governor, told reporters.

She said it could affect industries ranging from cement to advertising, and add about 0.04 percentage point to growth this year.

Bank Indonesia's outlook for 2018 GDP growth remained 5.1-5.5 per cent, which took into account the rate hikes and looser mortgage rules, she said. Growth in 2017 was 5.07 per cent.

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BI has raised its benchmark rate by a total of 100 basis points in six weeks, with the third and latest hike in that period coming on Friday, as it ramps up efforts to defend the rupiah and stem a sell-off washing across emerging markets.

To offset the impact of higher interest rates on gross domestic product (GDP) growth, the central bank also announced a plan to ease rules on home loans.

Effective August 1, banks may offer mortgages with no downpayment for first-time home buyers, scrapping a 15 per cent requirement currently in place. BI will also ease a rule preventing the use of bank loans to fund partially-built houses.

BI expects mortgage loans to grow over 13 per cent annually this year, pushing overall credit growth to 12 per cent for 2018, Ms Hendarta said.

Loan growth was 10.26 per cent in May.

"People's consumption in the property sector has increased and households' repayment ability remains relatively high," she said, adding that mortgage takers are not sensitive to higher interest rates though they respond well to changes in downpayment rules.

REUTERS