UBS lowers growth forecasts for RI

UBS lowers growth forecasts for RI

Kabir Chibber, Bloomberg, London

UBS AG, Europe's biggest bank, cut its growth forecasts for
Indonesia for this year and next, following a slide in the
rupiah.

Indonesia's central bank increased its benchmark rate by half
a point to 10 percent on Sept. 6 for the third time in the past
four weeks to halt a plunge in the rupiah and stem inflation. The
rupiah has fallen almost 11 percent this year, triggered by a
surge in energy prices which has increased demand for dollars in
the only member of the Organization of Petroleum Exporting
Countries (OPEC) that is a net oil importer.

"We expect the policy response to the crisis to have growth
costs, but to be adequate to restore confidence in the exchange
rate," Christa Janjic, senior economist at UBS in Singapore wrote
in a research report. "We do not believe that further monetary
policy tightening and a gradual cut in fuel subsidies would cost
the economy excessively."

The Zurich-based bank lowered its forecast for Gross Domestic
Product growth in Indonesia, Southeast Asia's largest economy, to
4.7 percent from its earlier forecast of 5.2 percent for the
second half of 2005, and cut its estimate for growth in 2006 to
4.3 percent from 5.5 percent.

Inflation in Indonesia should rise to 12 percent by the year
end, wrote Janjic who wasn't immediately available for comment.
Interest rates will probably increase to 12 percent by year end
and 14 percent by the end of June 2006, wrote Janjic.

Consumer prices gained 8.3 percent from a year earlier in
August, its fastest pace in five months, on higher food costs
after rising 7.8 percent in July, the Central Statistics Bureau
said in Jakarta on Sept. 1. Indonesia's inflation rate reached a
26-month high of 8.8 percent in March after the government
boosted fuel prices by an average of 29 percent to cut subsidies.

Investor confidence in the country can be restored and the
rupiah will probably return to around 10,100 to the dollar by the
end of the year, Janjic wrote.

The rupiah fell for the third day in four on Friday, to 10,365
against the dollar at 1 p.m. in New York, taking losses in the
past month to 5.7 percent, according to data compiled by
Bloomberg.

Indonesian State Minister of State Enterprises Sugiharto said
on Friday the country's central bank should be prepared to add to
this week's interest-rate increase to help support the value of
the rupiah.

"The Indonesian rupiah's weakening has caused concern about
the sustainability of economic growth," Sugiharto said at a
conference in London sponsored by Euromoney Institutional
Investor Plc. "The central bank has to keep its tightening bias
to prevent a further fall."