ASEAN KEY DESTINATIONS
Indonesia should hike rates soon
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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