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NEWS UPDATES 7 July 2009

Pre-election spending boosts Indonesia consumer confidence

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Indonesia's consumer confidence index rose to its highest in more than four years in June, boosted by spending ahead of a presidential election and a resilient economy, Reuters reported, quoting a central bank survey.

Southeast Asia's biggest economy holds a presidential election on Wednesday with incumbent President Susilo Bambang Yudhoyono tipped for relection for a second term.

The central bank, Bank Indonesia, said earlier this month the economy was expected to grow at the higher end of a 3-4 percent range this year, down from 6.1 percent last year, but still a stronger performance than many neighbours.

“The campaign period ahead of the presidential election as well as relatively better economic conditions and inflation have supported improving consumer confidence,” the central bank said.

Bank Indonesia's survey of 4,600 households in 18 cities across the country released on its website ( showed that the consumer confidence index rose to 109.1 in June, up from 105.9 in May. The previous high was 119.1 in December, 2004.

A reading above 100 means more consumers are optimistic than pessimistic. A separate survey by the state-controlled Danareksa Research Institute, however, showed sentiment was little changed, with its index almost unchanged at 89.4 in June from 89.5 in May. The last time the index was above 100 was in February 2005.

“With the harvest coming to an end, rural consumers had less cash than before thus triggering slightly weaker spending power,” Danareksa said in its survey.

Consumption accounts for about two-thirds of Indonesia's gross domestic product, giving it a better cushion from the impact of a global economic slowdown than some of its export-dependent peers.

Indonesia's inflation fell to 3.65 percent in June from a year earlier, marking the slowest pace in nine years, on the back of lower fuel prices and an easing in food price increases, allowing the central bank to cut interest rate further.

The central bank has cut its overnight policy rate by a total of 2.75 percentage points since December 2008 to a record low of 6.75 percent to as part of its efforts to revive consumption-driven growth. The central bank has indicated, however, that the monetary easing cycle is now drawing to an end.


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