Inflation May Rise to 6% Rate in July, Indonesia’s Basri Says

Indonesia’s inflation may rise to an annual rate of 6 percent in July after the government raised subsidized-fuel prices last month for the first time since 2008, Finance Minister Chatib Basri said.

“We’re optimistic inflation will reach our full-year target, Basri said in an interview today with Bloomberg TV Indonesia in Jakarta. “It’s not impossible that there will be deflation in September if we can ensure smooth supply and distribution flow of food.”

Basri, who became finance chief in May, oversaw Indonesia’s first price increase for subsidized fuel in five years as President Susilo Bambang Yudhoyono grapples with a declining currency near the end of his second term. The country raised domestic diesel and gasoline rates last month to cut energy spending and stem imports that have hurt the rupiah. The central bank raised its benchmark interest rate for the first time since 2011 to contain inflation expectations.

The fuel-price increase will strengthen the rupiah and the trade balance as oil imports fall while removing the incentive for smugglers to sell subsidized products abroad, Basri said last month. The nation will meet its budget assumption of the rupiah averaging 9,600 per dollar this year, Basri said then.

The government estimates that energy subsidies would have ballooned to $30 billion this year if left unchanged, eating up funds that could instead be spent on benefits for the poor or infrastructure projects. Imports of subsidized gasoline have fallen significantly in the past two weeks, Basri said.

Loan Growth

PT Bank Mandiri, Indonesia’s largest lender by assets, has said profit and loan growth will be hurt by higher interest rates and fuel prices. Inflation in June increased to 5.9 percent from a year earlier, the statistics office said today.

Growth in Southeast Asia’s biggest economy will be at the lower end of a forecast range of 5.9 percent to 6.1 percent in the second quarter, Bank Indonesia Governor Agus Martowardojo said last week. Gross domestic product rose 6.02 percent in the January-March period from a year earlier, the 10th consecutive quarter when growth exceeded 6 percent.

The central bank cut its 2013 economic expansion forecast in April to between 6.2 percent and 6.6 percent from the previous estimate of 6.3 percent to 6.8 percent, citing the drag on exports caused by the recession in Europe.

Indonesia’s economy faces challenges, and policy makers need to monitor the property market in Jakarta, Bali and other areas, as well as the impact of the fuel-price increase on inflation, Assistant Governor Hendar said today.

A parliamentary committee assessed three candidates for a vacancy on the central bank’s policy board today. The committee will announce its choice for deputy governor on July 8. The candidates are Hendar, who goes by one name, Treesna Wilda Suparyono, a director of the foreign-exchange management department at the central bank, and Mulya Siregar, an assistant governor.