ASEAN KEY DESTINATIONS
BI rate likely to stay at 7.5% throughout 2014, economist says
DBS Bank economist Gundy Cahyadi predicts Bank Indonesia’s benchmark interest rate (BI rate) will not suffer a decline in 2014 and remain relatively stable at the current level of 7.5 percent.
“Our basic scenario for the BI rate is that it will be stable at 7.5 percent throughout this year,” he said in a release in Jakarta on Wednesday, as quoted by Antara news agency.
The analyst said he was confident the central bank would stay alert this year and not lower the rate. There was still a chance, however, for the BI rate to increase if there were new pressures against the rupiah.
“It is unlikely that BI will change its current monetary policy. The inflation has calmed down but we are still fighting half a battle this year. The current-account deficit will likely remain for a bit longer. The deficit’s share of gross domestic product [GDP] of 2 percent tends to be more sustainable,” said Gundy.
He added there were worries over external funding, but that was considered normal, especially concerning uncertainties in the global market.
Meanwhile, from the inflation side, Gundy predicted that inflationary pressures in the consumer price index (IHK) cities would continue to be moderate and the impact of fuel price hikes last year had calmed down. Inflationary pressures from three main IHK components – food, housing and transportation and communication – had continued to show a declining trend.
“Moreover, core inflation has shown a declining inflation expectation; therefore, we predict the inflation rate will stand at 6.4 percent this year,” said Gundy.
Nevertheless, he said, risks of inflation were still there following the government’s plan to increase the electricity rate for industrial consumers by between 8.6 percent and 13.3 percent every two months starting from May. (ebf)
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