Indonesia Growth Seen Exceeding 6% Reduces Need for Rate Cut

Indonesian Growth Seen Exceeding 6% Reduces Need for Rate Cut
A customer shops for vegetables at a market stall in Jakarta. Photographer: Ed Wray/Bloomberg

Indonesia’s economic growth probably held above 6 percent last quarter, as domestic spending and rising investment countered falling exports, giving the central bank room to refrain from cutting interest rates.

Gross domestic product probably grew 6.2 percent in the three months through September from a year earlier, according to the median estimate of 12 economists surveyed by Bloomberg News ahead of a government report due Nov. 5. The economy expanded 6.37 percent in the previous quarter. Bank Indonesia will probably keep its benchmark rate at 5.75 percent on Nov. 8, according to all 11 economists in a separate survey.

Policy makers in Southeast Asia’s biggest economy have avoided adding to a February rate cut even as neighbors from Thailand to the Philippines extended monetary easing to counter faltering global growth. The rupiah is Asia’s worst-performing currency this year, boosting import costs and pushing inflation to a 13-month high in October.

“There’s less need to ease because the domestic economy is running quite hot,” said Eugene Leow, a Singapore-based economist at DBS Group Holdings Ltd. “Indonesia will be resilient and all the indicators so far in terms of consumption have been supportive,” said Leow, who expects a 75 basis-point increase in interest rates by the end of 2013.

The rupiah touched a three-year low yesterday and rose 0.1 percent to 9,618 per dollar as of 10:17 a.m. in Jakarta. It has fallen about 6 percent this year, the biggest decline among 11 most-traded Asian currencies tracked by Bloomberg. The yield on the benchmark 10-year bonds slid to an almost eight-month low, while the Jakarta Composite index was little changed.

Growth Target

President Susilo Bambang Yudhoyono has pledged to build more highways, airports and ports to improve infrastructure and meet a growth target of an average 6.6 percent by the end of his second term in 2014. Domestic investment in the third quarter climbed 33 percent and foreign direct investment advanced 22 percent from a year earlier, government data showed last month.

“Domestic demand remains strong,” said Eric Alexander Sugandi, an economist at Standard Chartered Bank Plc in Jakarta. “So the central bank will keep interest rates at the current level in November to support the economy and the rupiah.”

Malaysia is also due to announce its policy decision on Nov. 8. The Bank of Korea will hold its benchmark rate at 2.75 percent on Nov. 9, according to a separate Bloomberg survey.

Indonesia’s exports fell 9.4 percent in September from a year earlier, a report showed yesterday, a sixth straight month of declines. Consumer prices climbed 4.61 percent in October from a year earlier.

Still, the manufacturing Purchasing Managers’ Index climbed to 51.9 from 50.5 in September, HSBC Holdings Plc and Markit Economics said yesterday, and strong local demand has boosted revenues of companies. PT Bank Mandiri, the country’s biggest lender by assets, posted a 39 percent jump in third-quarter profit to the highest level in at least nine years.

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