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Indonesia's central bank today lowered its economic growth forecast for this year to 4.5%-5.3% from 4.7%-5.5% earlier. Indonesia's central bank governor Perry Wagiyo said this was in line with the outlook for global growth.

Indonesia's central bank expects global economic growth to slow to 3.5% this year, down from an earlier estimate of 4.5%. The World Bank also lowered its forecast for global economic growth this year to 3.2 percent from 4.1 percent.

Mr Perry said continued political tensions between Russia and Ukraine would lead to a decline in world trade. As the global economy slows, Indonesia's export growth will be curbed. At the same time, limited export growth combined with higher global energy and food prices will affect the future improvement of domestic demand in Indonesia.

Recently, however, high global commodity prices have supported Indonesia's exports. In March 2022, Indonesia's exports reached us $26.5 billion, up 29.42% month-on-month and 44.36% year-on-year, maintaining a trade surplus for the 23rd consecutive month.

Indonesia's central bank also left its benchmark interest rate unchanged at 3.5%, as expected.

Teuku Rivki, a macroeconomic and financial market economist at the University of Indonesia, said the central bank needs to maintain a stable monetary policy and implement prudent macroeconomic policies that are conducive to growth amid uncertainties in the economy.

Bank Indonesia macroeconomic analyst Elman Faizi says the central bank is most concerned about core inflation. So far, Indonesia's core inflation rate "remains in a moderate upward phase". He added: "If core inflation exceeds 4 per cent, the top of the target band, the central bank will start to adjust interest rates."

Mr Perry had previously said the central bank was "not going to respond to the first wave of impact" and would respond when inflationary pressures had a significant impact.

Joshua Pardede, chief economist at Gembank Indonesia, says the central bank will keep its benchmark interest rate unchanged until at least June. "If the benchmark interest rate is raised too quickly, it will have an impact on the demand side and lead to slower economic growth." Mr Joshua reckons bank Indonesia will only start raising rates in the second half of the year.

Mr Joshua believes the key now is to judge whether inflation is demand-driven or cost-driven. As it stands, supply is the main incentive. Bank Indonesia said it would consider normalising interest rates if demand began to pick up.