Most economists expect the central bank to keep interest rates on hold at a record low into next year to drive growth, although some have cautioned that tighter policy might be needed beyond that to dampen domestic demand that is causing a trade deficit.
Indonesia's statistics bureau said gross domestic product growth (GDP) last quarter was 6.4 per cent from a year earlier against 6.3 per cent in the first quarter, helped by domestic consumption and investment. GDP grew by 2.8 per cent on a quarterly basis, although the figures are not seasonally adjusted.
"The strong Q2 growth provides a cushion against the risk of further growth setbacks in the rest of the year," said Aninda Mitra, an economist at ANZ Bank in Singapore.
"But we still think policymakers will need to tighten policies to ensure that the strong growth does not destabilise the external financing gap, which could be rupiah negative and ultimately not good for inflation either."
Economists had forecast that annual growth in Southeast Asia's largest economy would ease to 6.1 per cent, citing shrinking exports.
Financial markets showed little reaction to the data, which showed that buoyant domestic demand, especially in transport, hotels and government consumption, kept growth on an even keel.
Thailand and Malaysia are also expected to post a pick up in growth in the second quarter versus the first quarter, economists have said.
After China, Indonesia's growth is also the highest among the world's leading emerging economies.
As demand from China and Europe fell in recent months, Indonesia has had consecutive trade deficits between April and June, weighing on the rupiah.
A burgeoning appetite for imports, from wheat for fast food to iPads and luxury cars, in a country that mostly exports raw commodities such as coal and crude palm oil, created a US$1.3 billion trade deficit in June - a deficit economists see continuing to the end of 2012 to keep pressure on the rupiah.
Expectations for slower growth meant economists had started to call for rate cuts this year. But most now see rates on hold into 2013 as Bank Indonesia will want to support annual growth towards President Susilo Bambang Yudhoyono's target of seven per cent by 2014. Reuters