Bank Indonesia Urged To Wait And See On Rates

By webadmin on 08:07 pm Jan 31, 2011
Category Archive

Reuters & JG

The country’s inflation in January is likely to ease slightly to an annualized 6.81 percent owing to a slight decline in food prices, after reaching a 20-month high in December, analysts have said.

Inflation is expected to fall from 6.96 percent in December, with core inflation — excluding volatile food and fuel costs — forecast at a stable 4.25 percent. The Central Statistics Agency (BPS) is scheduled to issue its inflation report today.

Food inflation has become a major worry for policy makers worldwide, with the government here scrapping import duties on rice, wheat and soybeans to reduce inflationary pressures over the coming months.

Analysts expect Bank Indonesia to keep its benchmark rate at a record-low 6.5 percent when it holds its policy meeting on Friday.

However, the central bank has said previously it may hike the rate by a quarter point early in the second quarter.

Juniman, chief economist at Bank Internasional Indonesia, said there was no reason for the central bank to raise rates with prices falling this month.

“This inflation is mainly caused by lack of supply, not high demand, like in December,” he said.

“Raising rates is not suitable to control inflation caused by supply.”

Purbaya Yudhi Sadewa, chief economist at state brokerage Danareksa Sekuritas, said that as long as the National Logistics Agency (Bulog) had enough food stocks for the coming months, inflation could be controlled.

“With the government’s plan to import rice, inflationary pressure may ease,” he said, adding there would be no need to raise rates for the next two to three months if food prices decreased.

State Enterprises Minister Mustafa Abubakar has said the government expects the next batch of imported rice to arrive before April, helping to allay concerns about food shortages.

The Bulog placed an order last week for 820,000 tons of Thai rice.

Bank Indonesia has been reluctant to lift rates, with deputy governor Hartadi A. Sarwono saying last week that it would only be hike as a last resort.

In December, he said the central back would not hesitate to move if core inflation reached 5 percent.

To stem inflation, Hartadi said Bank Indonesia had been intervening to keep the rupiah at around 9,000 to the dollar as a benchmark to achieving its 4 percent to 6 percent inflation target for this year.

Rates have been kept low to support economic growth — forecast at 6.4 percent in 2011 — and to avoid attracting more foreign capital inflows that could destablize markets.

But worries that Bank Indonesia is behind the curve in tackling inflation have led foreign investors to sell off Indonesian assets recently, with the Jakarta Composite Index falling about 8 percent this year after a stellar 46 percent gain in 2010.