Bank Indonesia likely to lower 2020 GDP outlook as coronavirus spreads

DAMPAK VIRUS CORONA - JAKARTA. Indonesia's central bank is likely to lower its outlook for 2020 economic growth at its next policy meeting as the coronavirus spreads globally, its governor said on Wednesday.

At February's policy meeting, Bank Indonesia Governor Perry Warjiyo had predicted the virus outbreak would have a V-shaped effect on economic growth, with a baseline rate of 5.1% that could go up to 5.2% with fiscal policy support. Growth in 2019 was 5.02%.

"But with outbreaks in developed countries, we have to calculate again," he told a banking conference, citing a rising number of infections in countries like Italy and Japan.

"In the next policy meeting, the likelihood is the figure will be lower."

The next policy meeting is March 18-19.

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Since the virus began spreading in China in late December, more than 116,000 cases and over 4,000 deaths have been reported globally, with Italy putting itself on a nationwide lockdown to slow the outbreak. Fears of a global recession are growing amid a drop in trade and tourism and increasing business disruptions.

Indonesia confirmed cases for the first time this month, with 27 recorded so far.

Despite the current uncertainty, Warjiyo still expects economic activity to begin recovering in April but said it will take six months to return to normal.

BI cut its benchmark interest rate last month, its fifth reduction since May, in response to the virus outbreak, and Warjiyo said growth this year may be slower than initially expected, within a range of 5.0%-5.4%, compared to BI's previous range of 5.1%-5.5%.

Warjiyo did not comment on Wednesday on policies BI may implement at its March meeting, but has previously said BI had "many instruments" it can use to prop up growth.

BI remains committed to stabilising markets, after Indonesia's bond, equity and foreign exchange markets saw net capital outflows equivalent to 40.16 trillion rupiah ($2.8 billion) in the year to date, mostly government bonds, Warjiyo said.

BI had bought 130 trillion rupiah of government bonds to stabilise yields, he said, adding that the central bank was closely cooperating with other local agencies.

"We know what to do," he said, adding BI was always assessing what a "doomsday scenario" could look like and its probability "which at the moment is still relatively high".

Read Also: Japan's economy shrinks faster than estimated as virus compounds recession risk

Meanwhile, Finance Minister Sri Mulyani Indrawati has pledged more fiscal support after launching a 10.3 trillion rupiah ($718.27 million) stimulus package last month. However, economists question how much additional spending can be provided, given weak revenue collection so far this year.

Authorities were prepared to use all measures implemented during the 2018 global financial crisis to stabilise markets, including buying back government bonds, Indrawati has said.

The Indonesia Stock Exchange revised on Wednesday its guidance on trading halts, beefing up measures already implemented to control outflows after the index posted its biggest single day loss in more than eight years on Monday.