The World Bank on Tuesday downgraded its growth forecast for the Indonesian economy in 2013, citing slower recovery in exports and moderation in domestic demand.

In its quarterly statement, the World Bank said Indonesia's GDP is set to grow at a weaker rate of 5.9 percent this year than the 6.2 percent expansion estimated earlier.

"The outlook for the economy weakened, following slightly weaker-than-expected growth in the first quarter and signs that domestic demand, particularly investment, has continued to moderate," the report said.

However, the slowdown could be sharper than currently estimated, given the risks to demand from headwinds from high inflation due to higher fuel prices and the potential effects of recent international financial market volatility, and the continuing slump in exports due to weaker commodity prices.

Earlier this month, Bank Indonesia unexpectedly increased its benchmark interest rate by 25 basis points to 6 percent, marking the first raise since 2011, in a bid to contain rising inflation expectations and to maintain macroeconomic and financial stability.

The central bank forecasts that Indonesia's economic growth in the second quarter will be biased towards the lower bound of its earlier forecast range of 5.9-6.1 percent amid a slowdown in the global economy.

Economic growth in Southeast Asia's largest economy tumbled to a two-year low in the first quarter of 2013, with the gross domestic product rising 6.02 percent on a yearly basis, according to official data released last month.

RTTNews