Bank Indonesia may raise key rate again to stem soaring inflation
Bank Indonesia may raise key rate again to stem soaring inflation
Bloomberg, Jakarta/Singapore
Indonesia's central bank may raise its benchmark interest rate by a percentage point, its sixth increase in four months, after a report showed inflation jumped to a six-year high in November for the second month.
Bank Indonesia may raise the BI rate, a reference for bill sales, to 13.25 percent from 12.25 percent, according to the median forecast of 10 economists in a Bloomberg survey. The central bank's board of governors will meet in Jakarta on Dec. 6.
Inflation in Southeast Asia's largest economy accelerated a more-than-expected 18.4 percent from a year earlier in November, the fastest pace since June 1999. Central banks in India, South Korea, Thailand and Malaysia have increased interest rates this year to curb inflation caused by rising fuel prices.
November's inflation surge "supports our view that there will be more monetary policy tightening in Indonesia," Christa Janjic, senior economist at UBS AG said in a note to clients. "We and the market had expected inflation to have peaked in October. What went wrong," was that food prices did not fall after the Muslim festival and second-round inflationary impact was stronger than expected.
BI on Nov. 1 raised its benchmark interest rate by a record 1.25 percentage points to 12.25 percent, the fifth increase in nine weeks, after October's inflation report showed the consumer price index had gained 17.9 percent.
"It is impossible for Bank Indonesia to loosen its stance," central bank spokesman Halim Alamsyah said in Bali on Friday. "We will keep the tight monetary policies in place."
Prices have risen after Indonesia almost tripled kerosene costs and more than doubled diesel tariffs on Oct. 1. Gasoline prices rose by 88 percent. The move will help the government cap subsidies this year at Rp 89.2 trillion (US$8.7 billion).
The surge in inflation in November "was affected by oil shock and fuel price increases," Bank Indonesia's Senior Deputy Governor Miranda Goeltom said in Bali on Friday. "Our response will be to consider the core inflation more. Core inflation in October was higher than what we expected in the beginning of the year."
Indonesia's real interest rate, the difference between its interest rate and inflation, stands at a negative 6.15 percentage points, compared with negative 2.15 percentage points in Thailand and half a percentage point in the Philippines.
"The big question for Bank Indonesia is, how long will it keep the negative interest rate and how big will it keep the gap?," said Winang Budoyo, an economist at PT Mandiri Sekuritas in Jakarta. "Even if Bank Indonesia raises rates, it won't be as high as last month's 125 basis point increase."
BI on Nov. 30 said inflation will probably exceed 17 percent this year.
"Ideally, the BI rate should be 14 percent or 15 percent," Drajad Wibowo, an economist and a member of the House of Representatives' Commission XI on financial affairs, said on Friday in Bali. "Banks have already increased their deposit rates in response to high inflation. If BI doesn't increase rates, it is not consistent and banks won't trust the central bank. They have to maintain credibility."
Indonesia's economic growth rate slowed to 5.3 percent in the third quarter from a year ago, the slowest this year, after gaining 5.8 percent in the previous quarter and 6.1 percent in the first three months of the year.
The central bank forecasts next year's growth rate will be between 5 percent and 5.6 percent, Central Bank Governor Burhanuddin Abdullah said on Nov. 30.
Accelerating inflation also forced Indonesia's real estate association to cut its forecast for new home sales this year by as much as 20 percent because higher fuel costs slowed demand for houses.
The Indonesian Real Estate Developers Association reduced its forecast to as low as 80,000 homes from the previous estimate of 100,000, said Lukman Purnomosidi, chairman of the association.