Indonesia May Keep Benchmark Interest Rate at 6.5%, Report Faster Growth
Indonesia May Keep Benchmark Interest Rate at 6.5 %
Ian Waldie/Bloomberg
Susilo Bambang Yudhoyono, Indonesia's president.
Susilo Bambang Yudhoyono, Indonesia's president. Photographer: Ian Waldie/Bloomberg
July 30 (Bloomberg) -- Jacob Ramsay, an analyst with Control Risks Group, talks with Bloomberg's Susan Li about the outlook for the Indonesian economy and government. Indonesia’s benchmark stock index has risen 22 percent this year, the best performer among Asia’s 10 biggest markets, as record-low interest rates accelerated growth in Southeast Asia’s biggest economy and boosted earnings. (Source: Bloomberg)
Indonesia may keep its main interest rate at a record low for a 12th straight month, putting off joining its neighbors in raising borrowing costs even as growth and inflation accelerate in Southeast Asia’s biggest economy.
Bank Indonesia will leave its reference rate unchanged at 6.5 percent tomorrow, according to all 22 economists in a Bloomberg News survey. The measure is at the lowest level since its introduction in July 2005.
Indonesia has refrained from following economies from India to Thailand in raising rates as President Susilo Bambang Yudhoyono targets annual growth of 6.6 percent. Stocks fell the most in five weeks today after a report yesterday showed July inflation reached a 15-month high, prompting Citigroup Inc. to predict the central bank may indicate it’s moving closer to raising borrowing costs even as it holds rates tomorrow.
“We think Bank Indonesia will be more hawkish in its next monetary policy statement,” Citigroup analysts Johanna Chua and Monica Ratnaputri said in a report. “The odds have increased that Bank Indonesia will hike earlier than our forecast” of the first quarter of 2011, they said.
The central bank said yesterday it needs closer coordination with the government to keep food prices “reasonable” after bad weather affected supply and spurred inflation. Indonesia’s 2011 inflation may be about 3.5 percent to 5.5 percent and the medium-term inflation rate may be about 3 percent to 5 percent, Governor-designate Darmin Nasution said in Jakarta today.
Monitoring Inflation
“Bank Indonesia is always monitoring the inflation rate,” he said when asked about last month’s 6.22 percent increase in consumer prices, which exceeded the forecast of all 20 economists surveyed by Bloomberg News.
Consumer prices may climb in a range of 5.8 percent to 6 percent this year, Bank Indonesia Deputy Governor Hartadi Sarwono said July 20. The bank isn’t yet considering raising its benchmark rate, Deputy Governor Budi Mulya said July 9.
A strengthening rupiah may help limit inflationary pressures. The currency has gained more than 10 percent against the dollar in the past year, making it one of Asia’s two best performers along with the Malaysian ringgit.
“Despite the soaring inflation rate in July, we expect the central bank to keep the BI rate at 6.5 percent,” said Juniman, an economist at PT Bank Internasional Indonesia in Jakarta. “The increase in inflation in July was temporary, due to climatic anomalies,” and price gains this year will be consistent with the central bank’s target, he said.
Growth Quickens
Indonesia’s economy probably expanded 6 percent last quarter from a year earlier, the fastest pace since 2008, according to the median of 16 estimates in a Bloomberg survey ahead of a government report due Aug. 5. Faster growth has helped boost profit at companies including PT Citra Marga Nusaphala Persada, an Indonesian toll-road operator, and PT Indocement Tunggal Prakarsa, a cement producer.
The central bank may have less room to keep interest rates at a record low in the coming months as electricity tariffs rise and the world’s largest Muslim population observes the fasting month of Ramadan, according to Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore.
Indonesia’s parliament in June approved a government proposal to increase electricity tariffs for the first time in seven years starting July, a move aimed at reducing subsidies.
“At a historical low of 6.5 percent, it seems reasonable for them to start adjusting the lever of interest rates as a response to better-looking growth prospects and consequently inflationary pressures,” said Enrico Tanuwidjaja, an economist at OSK-DMG Group in Singapore. “We expect them to start hiking by the end of the third quarter.”
To contact the reporters on this story: Michael J. Munoz in Hong Kong at mjmunoz@bloomberg.net; Greg Ahlstrand in Jakarta at gahlstrand@bloomberg.net
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