OREANDA-NEWS. Fitch Ratings believes Indonesia's car sales will increase between 3% and 5% in 2016, buoyed by new product launches, a more positive macroeconomic environment, increased liquidity and more relaxed financing terms.

Fitch believes the country's domestic car sales will reach about 1.05 million units this year. Car sales in the first seven months of 2016 rose 2% yoy to 594,514 units, according to the Indonesian Automotive Industry Association (Gaikindo). PT Toyota Astra Motor (TAM) continues to lead with a 52% market share through leading brands Toyota and Daihatsu; the low-cost-green-car (LCGC) segment is also gaining momentum, and contributed 18% to total car sales in 7M16. Gaikindo forecasts car sales will rise by at least 5% this year.

This year, TAM has introduced the new version of its SUV product - Toyota Fortuner - and launched a new product - Toyota Sienta, which is a seven-seater multi-purpose vehicle (MPV) that will compete with the Honda Freed. Recently, TAM and PT Astra Daihatsu Motor also introduced the Toyota Calya and Daihatsu Sigra, respectively. The Toyota Calya and Daihatsu Sigra are both seven-seater LCGCs that target the low-cost segment; both are in the price range of IDR110m-150m.

Fitch believes Indonesia will maintain GDP growth of 5.1% yoy in 2016, supported by monetary policy easing, government programmes to accelerate infrastructure spending, and a tax amnesty plan. The government expects GDP to grow by 5.3% in 2016, compared with 2015 GDP growth of 4.8%.

The tax amnesty programme should bolster government revenue and allow for increased public capex, in Fitch's view, while the repatriated funds should boost liquidity in Indonesia. Bank Indonesia (BI) has cut its reference rate by a total of 100bp since the end of last year to 6.50% in July 2016 (along with cuts in the reserve requirement ration). BI is also in discussions to further relax the loan-to-value ratios for auto financing. This, along with lower interest rates, would support auto-loans financing; about two-thirds of car purchases in Indonesia are made using car loans.