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NEWS UPDATES Asean Affairs        13  April 2011

Indonesia should hike rates soon

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Although Bank Indonesia kept its benchmark rate steady this week, observers are convinced it cannot maintain that stance for long because of rising consumer prices.

As expected, Bank Indonesia left its policy rate unchanged at 6.75 percent, relying on a strengthening rupiah to keep inflation in check. The rate stayed the same for a second successive month after a rise of 25 basis points in February, the first increase in more than two years.

But experts said inflationary pressures would increase in the second half, forcing the central bank to raise its rate.

Destry Damayanti, an economist at Mandiri Sekuritas, predicted that BI would raise its rate by a quarter-point to 7 percent in June at the earliest.

“Core inflation continues to increase and global commodity prices are on the rise,” she said, adding that she expected the hike to be the last of this year. “After all, Bank Indonesia cannot let rupiah strengthen forever because it would hurt exports.”

The rupiah has appreciated 3.8 percent since the start of 2011, rising to 8,655 as of the market’s close on Tuesday.

“The board of governors believes that a strengthening rupiah exchange rate so far has reduced inflationary pressure, particularly that coming from the increase of international commodity prices,” Bank Indonesia said in a statement after holding its monetary policy meeting.

While the government has backed off efforts to limit fuel subsidies as global oil prices soar, BI did acknowledge that domestic inflationary pressure remains a concern and that borrowing costs would increase.

“This decision did not change the direction of Bank Indonesia policy, which tends to be tight as an effort to control high inflationary pressure, along with government efforts to dampen inflationary pressure,” Bank Indonesia said in its statement.

Consumer prices rose 6.65 percent last month from a year earlier, slower than the 6.84 percent increase in February. Core inflation, which does not include volatile food and fuel prices, accelerated to 4.45 percent in March from 4.36 percent the previous month.

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This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More


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