Inflation continues to ease: BPS

The Jakarta Post, Jakarta

Inflation continued to ease last month on the back of the lower price of food commodities and beverages, providing room for a further cut in the domestic interest rate.

The Central Statistics Agency (BPS) reported on Friday that consumer prices in July increased slightly by 0.03 percent, up by 5.79 percent from the same period last year.

BPS said that last month's inflation was attributed to the higher cost of housing, health-care, education, transportation and communications, this may be connected to the increase in electricity prices during the month.

The mild inflation rate should pave the way for the central bank to further lower its benchmark interest rate -- already at a historic low -- and push banks to make loans more cheaper.

The interest rate of the one-month Bank Indonesia SBI promissory notes currently stands at 9.10 percent compared to more than 13 percent earlier last year.

Some analysts have said that the SBI rate could go down to around 8 percent by the year-end if inflation is maintained at less than 7 percent.

With the year-on-year inflation rate at just 5.79 percent in July, lower than the rate of 6.62 percent in June, many are optimistic that Bank Indonesia will continue to cut its benchmark rate.

Meanwhile, Bank Indonesia Governor Burhanuddin Abdullah said on Friday that there was still room for more interest rate cuts amid the expectation of low inflation.

"If I look at the (mild) inflation, the tendency will be to continue our cautious monetary easing policy," he told reporters.

The central bank has been slashing its benchmark rate to encourage banks to make loans cheaper for the corporate sector, and to help the government in repaying its huge domestic debts.

New borrowing by the corporate sector should also help push economic growth and create more jobs.

BPS deputy chief Slamet Mukeno said that the low monthly inflation in July had brought inflation for the first seven months of the year to 1.26 percent, compared to the government's full-year target of 9 percent.

"The prices of basic food declined by 0.72 percent putting the breaks on overall price rises," Slamet said.

The rapid appreciation of the rupiah against the U.S. dollar has made prices of food and other imported goods cheaper.

The benign inflation also assists the people's purchasing power, thus maintaining a strong domestic consumption. Retaining domestic consumption has become the main force behind the country's economic growth during the past three years.