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Indonesia central bank slashes 2021 GDP outlook to 3.8%

Lowered forecast from 4.6% assumes COVID curbs to remain for 4 to 6 weeks

AKARTA (Reuters) -- Indonesia's central bank has cut its forecast for 2021 economic growth to 3.8% based on early assessment of the impact of recent coronavirus restrictions, from a previous forecast of 4.6%, its governor said on Monday.

Southeast Asia's largest economy has been battling the region's worst COVID-19 epidemic, with cases and deaths climbing at an alarming rate and many hospitals inundated.

The archipelago has imposed broad restrictions on Java and Bali islands and added more measures last week in several other regions.

Authorities have said the July 3-20 curbs could be extended if necessary and the finance ministry is using an assumption of 4- to 6-week-long restrictions for its GDP outlook.

Bank Indonesia's (BI) new forecast was based on an assumption that mobility restrictions could successfully bring down cases after a month, the governor said.

"Initially we estimated that ... Indonesia's GDP can grow 4.1% to 5.1% this year, or the midpoint was 4.6%," Governor Perry Warjiyo told a hearing with parliament's budget committee.

"Our early assessment of 2021 economic growth is it will be below this earlier forecast," he said.

"If this emergency mobility restrictions are conducted in a month and can bring down COVID, economic growth will drop to 3.8%."

The government's 2021 growth forecast is between 3.7% to 4.5%. Last year, GDP contracted for the first time since 1998 by 2.1%.

Warjiyo also said measures were needed to mitigate the impact of the containment measures on private consumption.

However, the governor also warned that BI was juggling supporting economic growth with maintaining financial markets stability amid the prospect of a U.S. monetary policy tightening, which could trigger outflows.

The rupiah has been weakening in line with comparable markets, but "there could be pressure in the future", Warjiyo said while pledging to continue to support the currency.

To support the recovery, Warjiyo said rates will be kept low and liquidity ample.

BI has cut its key rate by a total of 150 basis points to a record low and injected over $55 billion of liquidity into the financial system during the pandemic.

Prior to the recent outbreak, some economists had expected it would keep its benchmark unchanged throughout the year.

Some economists have also downgraded Indonesia's 2021 GDP growth. Fitch Solutions has trimmed its growth forecast to 4.4% from 5.1%.

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