January 5, 2009 Analysts Predict BI To Do More Rate Cuts The country's inflation rate is expected to have fallen in December to a six-month low following cuts in fuel prices, paving the way for further interest rate cuts by Bank Indonesia, the central bank, to spur growth, a Reuters poll showed.
Global oil prices have slumped, allowing the government to cut the price of subsidized gasoline twice in December, and to promise a further reduction in January. "Lower fuel prices helped ease annual inflation in December," said Helmi Arman, an economist at PT Bank Danamon Tbk. "Now the risk of slower economic growth is greater than the risk of high inflation, so they [Bank Indonesia] will move faster." The median of forecasts by 11 economists is for annual inflation to have eased in December to 11.3 percent, from 11.7 percent in November. That would mark the lowest rate since June, when annual inflation was running at 11.03 percent. Inflation peaked at 12.14 percent in September, after the government raised subsidized fuel prices by an average of nearly 30 percent in May to ease pressure on its subsidy bill. But as oil prices fell from a record of more than $147 a barrel in July, the government has cut subsidized fuel prices. Energy Minister Purnomo Yusgiantoro said on Dec. 25 that the government would make a further downward adjustment to subsidized fuel prices in January. Bank Indonesia in early December cut its key interest rate by 25 basis points to 9.25 percent, the first cut in a year, as inflationary pressures abated and the rupiah steadied following a sharp sell off, the Reuters poll showed. Analysts said Bank Indonesia would cut rates by another 25 basis points to 9 percent at its next meeting on Wednesday, underlining that it has shifted its focus to bolstering growth against the global downturn. On Jan. 1, the Ministry of Finance said in a statement that the economy expanded 6.2 percent in 2008, but the government has previously warned that growth in 2009 could slow to 5 percent due to the global financial crisis. The ministry also said that inflation in 2008 was 11.4 percent. The finance minister in December forecast inflation of 6 percent in 2009. Consumer prices in December rose 0.24 percent from November, twice the pace of November, the poll suggested. The monthly figures are not seasonally adjusted. Reuters
