Indonesia Economy Expands Most in Year, Reducing Need for Record-Low Rate
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’s economy expanded at a faster-than-estimated pace last quarter, spurring stocks and adding pressure on the central bank to raise borrowing costs from a record low as inflation accelerates.
Gross domestic product in Southeast Asia’s largest economy grew 6.2 percent in the three months to June 30 from a year earlier, the Central Bureau of Statistics said today in Jakarta. The median estimate of 19 economists in a Bloomberg News survey was for a 6 percent expansion.
Bank Indonesia has left its benchmark interest rate at 6.5 percent since August 2009, helping boost earnings at car retailer PT Astra International and putting the nation on course to meet President Susilo Bambang Yudhoyono’s goal of 6.6 percent average annual growth. Governor-designate Darmin Nasution may need to follow counterparts in Malaysia, Thailand and Taiwan in raising rates after inflation quickened to a 15-month high.
“In our view, BI had been right in not raising policy rates previously as macro improvement and currency stability drove a structural downtrend in inflation,” Morgan Stanley Asia (Singapore) Pte. said in a report published after the announcement. “Yet now, cyclical inflation risks are on the rise. We would view a timely rate hike positively as it would be a signal to the market of BI’s commitment to manage inflation and to help prevent what is now a benign growth cycle from turning into an overheated one.”
Consumer prices rose 6.22 percent in July from a year earlier, exceeding economists’ forecasts for the second straight month as food prices rose after rains hurt harvests and buying increased ahead of Ramadan, the Muslim fasting month.
Inflationary Pressure
Bank Indonesia is “taking careful note of the recent onset of higher inflationary pressure” and will take action as necessary to ensure the target of 4 percent to 6 percent inflation for 2010 and 2011 is met, the central bank said in a statement yesterday after it announced its rate decision.
The rupiah has risen 5 percent against the dollar this year, the third-best performer in Asia, as an accelerating economy and a benchmark interest rate that’s higher than those in Malaysia, Thailand and the Philippines lures investors. The currency was little changed at 8,944 a dollar at 1:16 p.m. today. The Jakarta Composite Index rose 1.6 percent, set for its steepest increase since June 3.
Indonesia’s economy may expand more than 6 percent this year, Slamet Sutomo, deputy for the national accounts and statistical analysis at the Central Bureau of Statistics, said in Jakarta today.
Foreign Investment
Investment contributed to second-quarter growth as confidence in Southeast Asia’s largest economy improved, Gunawan said.
“We’ve seen a lot of portfolio investments, but there’s also increasing foreign direct investment coming in,” he said. “The investment trend will likely continue as we don’t see any upheavals in Europe and although the U.S. economy appears to be slowing, it isn’t another dip.”
Foreign and domestic realized investment in Indonesia rose 55.8 percent to 50.8 trillion rupiah ($5.7 billion) in the second quarter from a year earlier, Gita Wirjawan, head of the country’s investment coordinating board, said July 28.
Companies are taking advantage of higher earnings and using cash to fund their expansion, Gunawan said.
Indo Tambangraya Megah, an Indonesian coal producer, has $300 million to $400 million in cash and won’t need external financing as it considers acquiring coal mines in Kalimantan, President Director Somyot Ruchirawat said in Jakarta yesterday.
The effective interest rates, or lending rates charged by finance companies, have also helped drive sales of motorcycles and cars, Gunawan said.
Indonesia’s domestic vehicle sales in June rose to 70,384 units from 60,516 units in May, PT Astra International said July 20, citing data from the nation’s automotive industries association. Domestic motorcycle sales climbed to 653,390 units in June from 640,234 units in May, the company said.
“Rising consumer spending and investment will likely sustain growth in the second half of this year,” said Andry Asmoro, an economist at PT Bahana Securities in Jakarta. “The backbone of our economy, consumption, held up nicely as is indicated by strong vehicle and motorcycle sales.”
To contact the reporters on this story: Greg Ahlstrand in Jakarta at gahlstrand@bloomberg.net; Berni Moestafa in Jakarta at Bmoestafa@bloomberg.net.
Rate this Page