Inflation continues to ease: BPS

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.