Indonesia May Delay Rate Increase

Indonesia’s central bank will probably keep interest rates unchanged for a fourth month as slowing inflation and a strengthening currency allows it to delay an increase and support economic expansion. 

Bank Indonesia will hold its benchmark reference rate at 6.75 percent, according to all 14 economists surveyed by Bloomberg News ahead of a decision due in Jakarta tomorrow. 

Governor Darmin Nasution has refrained from adding to the central bank’s first rate increase in more than two years in February even as neighbors from Thailand to the Philippines tightened monetary policy further. Inflation eased for a fourth month in May as a 5.4 percent gain in the rupiah this year capped import costs. 

“Inflation is still under control, so Bank Indonesia will hold interest rates this month to support economic growth,” said David Sumual, an economist at PT Bank Central Asia in Jakarta “It doesn’t mean Bank Indonesia is behind the curve.” 

President Susilo Bambang Yudhoyono’s policy makers have extended fuel subsidies and let the rupiah climb the most after Taiwan in Asia this year to damp inflation, as rising food and oil costs force China, Thailand, India, Vietnam, Malaysia and the Philippines to raise rates. 

The Indonesian currency touched 8,506 a dollar earlier this week, the strongest level since March 2004. A stronger currency has also helped Australia contain inflation, allowing the Reserve Bank of Australia to leave its benchmark rate unchanged at 4.75 percent for a sixth straight meeting yesterday.

Growth Eases

Southeast Asia’s biggest economy expanded 6.5 percent last quarter from a year earlier, slowing from 6.9 percent in the previous three months. Gross domestic product may rise 6.5 percent to 6.9 percent in 2012, Finance Minister Agus Martowardojo said May 20. 

“This isn’t the time for Bank Indonesia to raise rates,” said Erwan Teguh, head of research at PT CIMB Securities Indonesia in Jakarta, citing easing inflation. 

The government will probably refrain from raising fuel prices, helping support “strong GDP growth this year,” Ari Pitoyo, head of research at PT Mandiri Sekuritas in Jakarta, said in a report sent to Bloomberg News on June 6. That would be good for property and consumer goods companies, Pitoyo said. 

CIMB’s Teguh said the outlook is promising for consumer companies such as PT Astra International, PT Gudang Garam, PT Indofood Sukses Makmur and PT Unilever Indonesia.

Stocks Climb

The country’s benchmark stock index has climbed 3.8 percent this year, outperforming those in Japan, Hong Kong, China, Taiwan, South Korea, India, Singapore, Malaysia, Thailand and the Philippines. Jakarta-based Property developer Royal Oak Development Asia led gains. 

Still, Indonesia’s policy makers may raise borrowing costs starting next month if inflation accelerates out of control in July and August, Bank Central Asia’s Sumual said. 

Consumer prices rose 5.98 percent last month from a year earlier, less than the 6.16 percent gain in April. Core inflation accelerated to 4.64 percent from 4.62 percent in April.

Neighboring Thailand raised rates last week for the fourth time this year to damp accelerating inflation, boosting the one- day bond repurchase rate by a quarter of a percentage point to 3 percent. The Philippine central bank increased the rate it pays lenders for overnight deposits to 4.5 percent in May from 4.25 percent in its second move this year, while Bank Negara Malaysia lifted the overnight policy rate by a quarter-point to 3 percent. Source: Bloomberg