Monday, March 1, 2010
Inflation Slows in February on Stronger Rupiah: BI
Source: The Jakarta Post
Aditya Suharmoko

The central bank has estimated that inflation in February would slow to 0.4 percent from the previous month because of a combination of lower rice prices and a stronger rupiah against the US dollar.

The Central Statistics Agency (BPS) will announce the official figure on Monday. BPS reported last month's inflation rose 0.84 percent from December, making a year-on-year inflation rate of 3.72 percent.

Bank Indonesia (BI) Deputy Governor Hartadi A. Sarwono said year-on-year inflation might be little changed from that figure. "February's inflation will range between 0.3 percent and 0.4 percent because of better rice prices and stronger exchange rates," he said at the State Palace last week.

Low inflation will provide BI more room to hold its benchmark interest rate at 6.5 percent. That low rate is expected to help banks to cut lending rates needed to ease borrowing costs so that businesses can expand, which will eventually spur economic growth.

The government expects the economy to expand 5.5 percent this year after booking 4.5 percent growth last year amid the global economic downturn. But BI has a lower growth projection of 5.2 percent for 2010, said acting BI Governor Darmin Nasution.

Hartadi said this year's inflation would likely be within BI's range of 4 and 6 percent so long as the global economy remained stable.

Bank Danamon economist Helmi Arman said inflation in February would increase 0.46 percent from January, making a year-on-year inflation rate of 3.98 percent. "We expect them to hold the rate at 6.50 percent on signs that underlying inflationary pressures remain subdued," he said.

"The monetary policy statement will probably still convey a neutral tone, although this might change if BI's February consumer survey - not yet published - shows a significant rise in inflation expectations," he added.

Many analysts predict BI would probably start raising its rate in the second half of this year.

BI is likely to wait until September before raising its benchmark interest rate of 6.5 percent, said HSBC Holdings Plc., Europe's biggest bank, Bloomberg reported. It forecast an increase of 100 basis points for 2010 and 50 basis points in 2011.

Citi analyst Johanna Chua said Asian currencies would continue to appreciate against the dollar. "We expect the Korean won, Indian rupee and Indonesian rupiah to strengthen in the near term," she said.