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Indonesia’s economy will grow by 6 percent this year and a little more than 6 percent next year, thanks to an improving investment climate and sound management of fiscal and monetary policies, the International Monetary Fund said on Thursday.

The IMF said it believes recent capital outflows from Indonesia are temporary and the European debt crisis poses a small downside risk to the country’s growth, although it said the central bank may need to adjust its monetary policy if price pressures increase.

“Indonesia’s economic growth is expected to accelerate to 6 percent in 2010, as recovering credit and surging capital inflows point to a robust outlook for private investment,” Thomas Rumbaugh, the IMF’s division chief for Asia and the Pacific, told reporters after meetings in Jakarta with central bank and other officials.

The domestic economy expanded 4.5 percent in 2009, making Indonesia one of three countries in Asia to have grown during a period of global recession, thanks largely to large domestic demand. The government has forecast 5.8 percent GDP growth this year in the revised 2010 budget, and 6.2 percent to 6.4 percent next year.

Attracted by the prospect of strong growth, investors have flocked to Indonesia’s bond, stock and currency markets in the past year. As a result, the stock market is up nearly 10 percent this year, making it one of the better performers in Asia.

Credit has also grown by almost 18 percent over the first five months this year, the central bank said on Wednesday, and is expected to continue the upward trend with an estimated growth of 17 percent to 20 percent this year, compared to just 10.9 percent last year.

Meanwhile, the government announced on Wednesday that it had eased restrictions on foreign investment in a range of sectors, including construction, health care and electricity generating.

“I think it’s a very important step in improving the investment climate. This is the one of the areas that Indonesia must improve in if it is going to receive investment-grade status and move forward with other emerging markets,” Rumbaugh said.

Rumbaugh added that the country’s limited exposure to European markets in the past has served to protect it from being hurt too badly by the European debt crisis.

“We’ve seen a bit of market reaction over the last month in terms of some capital outflows, but we think they [Indonesia authorities] have the tools to manage that,” Rumbaugh said, alluding to the new team of Finance Minister Agus Martowardojo and Darmin Nasution, who has been nominated as governor of the central bank by President Susilo Bambang Yudhoyono. “We don’t have any concerns about their ability to coordinate.”

Rumbaugh did warn that strong demand could result in price pressures on commodities and could lead to slight inflation if not managed properly.

“We don’t see the need for it yet, but if it comes to it later in 2010 Bank Indonesia should be prepared to adjust monetary policy if inflationary pressures increase,” Rumbaugh said.

The annual inflation rate hit 4.16 percent in May, its highest level in a year, led by increasing food prices, but the rise was in line with expectations.

Analysts, however, expect rate hikes by the third quarter this year and some fear Bank Indonesia might already be behind the curve.

Bank Indonesia deputy governor Hartadi Sarwono said late on Wednesday in Vienna that the central bank is aware that it may need to raise interest rates to 7 percent next year after keeping them at a record low of 6.5 percent so far this year.

The comments are the first by the central bank on the timing and scale of any rate hikes aimed at cooling inflation, and are at odds with the finance minister’s statement last month that rates could stay at 6.5 percent through 2011.

Hartadi said economic output was already close to full capacity, but added that the limit is mitigated by capital inflows which could mean a small raise in policy rates is indeed on the way next year.

“Our range maybe is 6.5 to 7 percent for 2011,” he said on the sidelines of a financial industry conference.

“I believe inflation pressure is still benign, and hope that we can keep interest rates flat at 6.5 percent,” he added.

Bank Indonesia cut the benchmark interest rate by a total of 3 percentage points between December 2008 and August 2009 to shield the economy from the financial crisis.