0 Central Bank’s Key Rate Tipped To Stay at 5.75% to Boost Growth

Indonesia’s central bank will likely hold its benchmark interest rate at its record low when Bank Indonesia governors meet to discuss the issue on Thursday. The nation’s monetary authority aims to boost growth rates amid woeful government expenditure and weak export figures, according to six economists contacted by the Jakarta Globe on Tuesday. The forecast is also in line with those made by 13 economists in a recent Bloomberg News survey. 

Eric Alexander Sugandi, an economist at Standard Chartered Bank in Jakarta, said the central bank is likely to hold the rate at 5.75 percent for the 14th straight month. It would also keep its overnight deposit rate, known as the Fasbi, at 4 percent, he said. “Current rates still support the inflation and exchange rates,” Eric said. “January and February saw inflation due to supply disruption, while the central bank would only react if inflation was due to demand,” he said. 

Indonesia’s inflation accelerated in February to 5.3 percent year-on-year, compared to 4.6 percent in January. June 2011 was the last time inflation exceeded 5 percent. “BI has kept its policy rate to show its bias toward growth,” Eric said on Tuesday. Economic growth slowed to 6.3 percent last year from 6.5 percent in 2011 due to weakened exports, while certain government projects failed to be realized in time to provide a compounding economic boost. 

Still, for the first two months of this year the government has only disbursed Rp 28.9 trillion ($2.98 billion), or just under 5 percent of its budget. Ministries and state institutions are still struggling with the budget’s details and terms of reference for its projects. “Below-target state spending is still a problem, like it has been in previous years, which makes government spending unable to optimally drive the economy,” said Lana Soelistianingsih, an economist at Samuel Sekuritas, in a research note on Tuesday. 

Government spending accounted for 8.9 percent of Indonesia’s gross domestic product last year. Indonesia posted a trade deficit due to weak commodity exports and domestic demand-driven imports of fuel and capital goods. However, the trade deficit in January improved slightly to $171 million from $188 million in December. Non-oil and gas exports exceeded imports by $1.26 billion in January, but oil and gas imports were totaled at a $1.43 billion deficit. Inflation was at its highest level over the last 20 months as consumers started to pay higher electricity bills, while the prices of some spices and vegetables rose due to supply disruptions and import curbs.

source : the jakarta globe