Indonesia Inflation Slows, Providing Room to Hold Benchmark Interest Rate
Indonesia’s inflation slowed for a third straight month in April as food prices declined during the harvest period, giving the central bank room to refrain from raising interest rates when policy makers meet May 12.
Consumer prices in Southeast Asia’s biggest economy rose 6.16 percent last month from a year earlier, after gaining 6.65 percent in March, the Central Bureau of Statistics said in Jakarta today. That’s less than the 6.4 percent median forecast in a Bloomberg News survey of 19 economists.
“A stronger rupiah significantly reduces import prices, which is positive for inflation,” Rusman Heriawan, chairman of the statistics bureau, said in press briefing today.
Bank Indonesia kept its benchmark rate at 6.75 percent in April after raising it in February by a quarter of a percentage point, which was the first increase since October 2008. The central bank will provide “more room” for the rupiah to appreciate as a stronger currency eases pressure from imported inflation, Deputy Governor Budi Mulya said on April 28.
“April deflation was still boosted by food-price drops and the seasonal factor,” Andry Asmoro, an economist at PT Bank CIMB Niaga in Jakarta, said after the inflation announcement. “What we need to watch now is the rising trend on core. We expect BI to raise the benchmark rate in June or July and reluctant to raise it this month.”
Consumer prices fell 0.31 percent in April from the previous month. Core inflation accelerated to 4.62 percent from 4.45 percent in a month earlier. In May, consumer prices won’t be increased significantly and still possible to slightly fall, Heriawan said.
The rupiah strengthened 0.2 percent to 8,543 per dollar as of 2:20 p.m. in Jakarta, the strongest level since March 2004, according to data compiled by Bloomberg. The currency has gained 5 percent this year.
“Without raising the interest rate this month, Indonesia’s key rate is still higher than other emerging markets, so the rupiah is attractive for investors,” said Fauzi Ichsan, a Jakarta-based senior economist at Standard Chartered Plc. The currency’s trend is to appreciate further, he added.
Indonesia’s exports surged 27.53 percent in March from a year earlier, the statistics department said in a statement. Imports climbed 31.96 percent to a record, the statement said.
Indonesia’s exports to Japan rose slightly to $2.71 billion in March from $2.67 billion in February, Heriwan said at the briefing. Imports from Japan rose in March to $1.64 billion from $1.41 billion in February.
“In April, from our current calculations, Indonesia’s exports to Japan may decline about 11 percent,” Heriawan said.
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