|
The central bank trimmed its key interest rate by a quarter
percentage point to 9.25 percent Tuesday, but stressed caution ahead
amid the recent flooding in the capital, which it said was could push
up consumer prices this month.
"The various risk factors ahead that we have considered show that there
is still room for further rate cuts, but it will be less than before,"
Bank Indonesia Governor Burhanuddin Abdullah said in a statement after
the central bank's Board of Governors monthly policy meeting.
"BI will carefully monitor any second-round effects on inflation
expectations in the coming months, and the effects of the flooding on
economic activities in the real sector."
Tuesday's rate cut follows a cut in January of the same size, and is
the ninth cut since May last year, which, taken cumulatively, have
resulted in the rate being reduced by 3.25 percentage points.
Starting August, BI lowered the rate five times by 50 basis points
(bps) -- or half a percentage point -- after two 25-bps trims in May
and July. They only time during this period that it maintained the rate
at its previous level was in June after consumer prices paced slightly
ahead the previous month.
BI's rate-cut policy is intended to help spur growth, and was made
possible after the inflationary pressures from 2005's fuel price hikes
worked their way out of the economy.
Both banking-sector consumer and corporate lending -- the interest
rates on which are benchmarked against the BI rate -- grew by only 14
percent to Rp 832.9 trillion last year, BI spokesperson Budi Mulya
said, far lower than 2005's loan growth of 22 percent.
Indonesia's economic growth managed to rebound during last year's
second quarter to 5.1 percent, increasing further to 5.5 percent in the
third, but is unlikely to exceed 2005's full-year growth of 5.6 percent.
The government hopes that growth will reach 6.3 percent this year, with
inflation at 6.5 percent and the BI rate at 8.5 percent.
Inflation in January continued slowing to a monthly 1.04 percent, and
an on-year 6.26 percent, from December's 1.21 percent and 6.6 percent,
respectively.
However, prices may well see an uptick on possible disruption of the
supply chain resulting from the recent flooding in Jakarta. Damage from
the flooding may also up business costs.
During major flooding in Jakarta in 2002, which was comparable in
extent to the flooding this year, monthly inflation in February hit 1.5
percent, close to the 1.99 percent recorded in January of the same year.
Trend inflation in February over the years since then -- which also saw
annual monsoonal flooding, although smaller in scale -- averaged some
0.2 percent. In fact, 2004 even saw deflation.
On the rupiah, Tuesday's rate cut appears unlikely to arouse
unfavorable sentiment against the national currency.
Forex analyst Farial Anwar said the real effective margin between the
BI rate and expected inflation was 3.25 percent, giving a margin
between the BI rate and the U.S Federal Reserve rate of 4 percent --
still enough to keep rupiah-based assets attractive and thus maintain
the stability of the rupiah.
The rupiah closed at Rp 9,055 to the U.S. dollar, from Monday's close
of Rp 9,068. The Stock Exchange Composite Index, however, closed down
again by 0.41 percent at 1,761.293, with concerns over the effects of
the flooding on business outweighing positive sentiment arising from
the rate cut.
|
