Indonesia Inflation Slows, Giving Scope for Further Rate Cut

Indonesia’s inflation unexpectedly slowed in October, increasing the central bank’s room to cut interest rates further to boost economic growth.

Consumer prices rose 4.42 percent from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a 4.61 percent gain reported earlier for September, and the 4.76 percent median of 17 estimates in a Bloomberg News survey.

Bank Indonesia lowered rates last month for the first time in more than two years, joining policy makers in other emerging-market nations who have cut borrowing costs or increased fiscal measures to shield their economies from a global slowdown. Governor Darmin Nasution said last month inflation isn’t the country’s primary challenge at a time when the world economy is weakening.

“With inflation still manageable, there is a chance the central bank will cut rates further,” Destry Damayanti, chief economist at PT Bank Mandiri in Jakarta, said before the report. “The global economy is still full of uncertainties and the markets haven’t stabilized yet so the central bank may want some clarity before moving again.”

Indonesia’s currency fell 0.4 percent to 8,893 per dollar as at 11:03 Jakarta. The central bank has said it would buy bonds and intervene to support the rupiah “until the market cools.”

Rate Cut

Bank Indonesia lowered the reference rate by a quarter of a percentage point to 6.5 percent at its October meeting. The next decision will be announced Nov. 10. The $707 billion economy is forecast to expand 6.6 percent this year, with growth easing to 6.5 percent in 2012, Nasution said Oct. 11.

“Inflation is still manageable this year but price pressures will increase next year,” Juniman, chief economist at PT Bank Internasional Indonesia in Jakarta, said before the report. “Electricity tariffs may be raised and rice prices will probably gain due to floods in Thailand.”

Bank Indonesia targets inflation of about 4 percent to 6 percent this year and around 3.5 percent to 5.5 percent next year.

Consumer prices fell 0.12 percent in October from the previous month, today’s report showed. Core inflation slowed to 4.43 percent in October from a year earlier, compared with 4.93 percent in September.

Indonesia’s exports rose 46.3 percent in September from a year earlier, the statistics department said in a separate report today. That compares with the 37.1 percent pace reported earlier for August.

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