The government will set the growth target for the economy in 2008 at between 6.6% and 6.8%, higher than this year's state-budget target of 6.3%, Coordinating Minister for Economic Affairs Boediono said on Monday (26/3/07), ahead of the passage of new investment legislation.
Boediono told an economics seminar he sees year-end inflation at 5.5-6% in 2008 compared to the 6% forecast for this year, Reuters reported.
"In terms of monetary policy, it is up to the central bank governor, but the overall trend is toward an easing, including an easing in interest rates as well as an easing in other rulings," Boediono said.
Bank Indonesia (BI) has cut its benchmark rate 10 times in less than a year, reducing it from 12.75% in April last year to 9.0% in March.
Boediono added that growth was now sustainable. "The turnaround is...for sure, and we expect it's something that will continue," he said, as reported by Dow Jones Newswires.
BI Governor Burhanuddin Abdullah made it clear that interest rates are not likely to fall further in any dramatic fashion.
He said the benchmark one-month interest rate will likely hit its bottom level of 8.50% by the end of year, he said Friday, Dow Jones Newswires reported.
"We will try to be consistent with the (government) budget target of (a benchmark) interest rate of 8.50%, so we target the BI rate to also be at 8.50% at the end of the year," Abdullah told reporters.
He said he expects March consumer inflation will slow from February's price rise.
The government raised Rp6.23 trillion ($684.8 million) from its second retail bond issue for the year. Bids worth Rp7.2 trillion ($790.3 million) were received.
"There was strong demand for the second retail bonds due to expectations of a downtrend in interest rates until the end of the year," the Director General of Treasury at the Finance Ministry, Rahmat Waluyanto, told reporters.
The government sold Rp3.28 trillion in bonds to retail investors in August last year, its first such issue, Reuters reported. The ministry set the coupon rate for the current three-year retail bond at 9.28%.
With the House of Representatives passing new investment legislation on Thursday, there were hopes of new interest in projects in the country.
The new investment law will give tax breaks to investors and ease bureaucratic hurdles. It aims to ease government rules and slash the number of days required to obtain land-use rights, Bloomberg News reported.
For investors planning to expand, the law also pledges tax incentives, including on income tax, and an exemption from tariffs on imported machinery.
“I would like to assure all friends and partners abroad that we are working very hard to improve the overall climate of investment and doing business in Indonesia,” President Susilo Bambang Yudhoyono said before the passage of the law. “The Indonesian economy must grow.”
The Investment Coordinating Board (BKPM) said it was optimistic about achieving investment growth of 15.2% this year.
"Investment is expected to grow by 15.2% this year. But we hope the realization of investment will exceed the target with the amendment of the investment law," said BPKM deputy head for promotion Darmawan Djajusman.