Indonesia may raise interest rates in 2010 after one final cut this year

Bank Indonesia will probably lower its benchmark rate by a further quarter point to 6.5 percent next month, according to Citigroup Inc. and PT Bank Danamon Indonesia. The bank yesterday reduced the key rate for an eighth straight month, bringing the cumulative easing to 275 basis points since December.

“Policy makers may soon throw in the towel in cutting rates,” said Helmi Arman, an economist at Bank Danamon in Jakarta. He expects Bank Indonesia's reference rate to be reduced to a “bottom” of 6.5 percent by August.

Bank Indonesia yesterday said its scope for further rate cuts was “limited” and that it was watching for inflation pressures in 2010 from higher commodity costs. Central banks in India and South Korea may also start raising borrowing costs early next year, according to analysts, as policy makers across Asia signal that economies in the region could be past the worst of the worldwide recession.

“As the global economy recovers, the inflation risk looms,” said Destry Damayanti, chief economist at PT Mandiri Sekuritas in Jakarta. “Although we expect Indonesian inflation to be restrained in 2009, it may not be the case in 2010.”

Indonesian consumer prices in June rose 3.65 percent from a year earlier, the statistics office said on July 1. That was the smallest increase since June 2000 and less than the 3.85 percent median forecast in a Bloomberg News survey of 20 economists.

'Bottoming Out'

Bank Indonesia is “confident” inflation will be below 5 percent this year, acting Governor Miranda Goeltom said at a briefing in Jakarta yesterday.

Consumer price gains may average 4.9 percent this year, compared with an earlier prediction of 5.2 percent, Johanna Chua, head of Asia-Pacific economic research at Citigroup in Hong Kong, said in a report yesterday.

“Headline inflation will head even lower in the coming months, bottoming out in September as favorable base effects persist, before rising in the fourth quarter to about 4 percent by year-end,” Chua said in the report. “We expect one more rate cut from here.”

Inflation in Indonesia may ease to a range of 2 percent to 4 percent for the remaining months of 2009, according to Ho Woei Chen, an economist at United Overseas Bank Ltd. in Singapore.

“However, a rebound in inflation next year to around 6.5 percent to 7 percent by the middle of 2010 will then require Bank Indonesia to reverse the monetary easing probably as early as the first quarter,” she said.

1|2|Next Page>>

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email