Indonesia loan growth feared to ease to 15-18% in 2014

It'll be the slowest since 2010.

The string of rate hikes by Bank Indonesia (BI) last years has led to falling loan growth and higher time deposit rates in the banking system.

According to a research report from DBS, the average loan growth is set to ease to 15-18% in 2014, its slowest since 2010.

M2 money supply growth is also set to come in circa 12% this year, its slowest pace in at least a decade. Meanwhile, average time deposit rate has reached its highest level since mid-2010.

Here's more from DBS:

Not that BI will be uncomfortable about this, though. Indeed, the tighter liquidity condition this year is exactly what the central bank has been aiming to do.

The BI policy statement in September indicates that the central bank is comfortable with the overall liquidity in the financial system.

Note also the fact that total foreign portfolio inflows up until August reached a record USD 14bn. There is nothing alarming about current liquidity in the financial system.

Liquidity conditions should also improve further going into 2015. In fact, several major banks have started to cut their time deposit rates in September.

As typically the case, fiscal spending is set to accelerate towards the year-end. More importantly, the new government is also likely to front-load its 2015 budget spending, anchoring the recover in investment growth.

At this juncture, we still expect GDP growth at 5.9% in 2015, up from a projected 5.4% this year.