Indonesia Plans Policies to Quell Property Costs, Add Dollars

Indonesia, Asia’s first major economy to raise interest rates this year, said it plans to quell rising property prices and address a shortage of dollars, as it seeks to cool inflation and support a weakening rupiah.

Bank Indonesia sees inflation reaching the upper end of its estimated 7.2 percent-to-7.8 percent range for 2013, and will respond if price gains approach such levels, Governor Agus Martowardojo told reporters in Jakarta yesterday. The central bank holds its monthly policy meeting today.

Bank Indonesia unexpectedly raised its key rate for the first time since 2011 at its June meeting ahead of an increase in subsidized fuel prices. The central bank is forecast to boost the reference rate today, with 13 of 19 economists surveyed by Bloomberg News predicting a quarter of a percentage point increase to 6.25 percent, three expecting a half-point move and the rest no change.

“We’ll formulate a policy mix as we see that the impact of the fuel price is more than we were expecting,” Martowardojo said, when asked about today’s meeting. “We can respond with a property rule and we’ll add forex supply in the market.”

The rupiah was little changed at 9,965 per dollar yesterday, prices compiled by Bloomberg from local banks show. It has fallen more than 5 percent in the past 12 months, the worst performer after the yen and the Indian rupee among 11 Asian currencies tracked by Bloomberg.

Bank Indonesia will keep the rupiah from weakening beyond 10,000 per dollar, Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia (CBA), said in an interview this month.

Indonesia’s inflation quickened to 5.9 percent in June from a year earlier, ahead of the start of the Ramadan festive season, when prices typically rise because of higher spending on food and travel. Food prices rose 10.7 percent while housing costs climbed 4.55 percent in the same period, the statistics bureau said July 1.

Bank Indonesia Deputy Governor Perry Warjiyo said in May the central bank is studying whether to impose stricter loan-to-value rules for mortgages in regions where property demand is expanding too quickly.

To contact the reporters on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Neil Chatterjee in Singapore at nchatterjee1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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