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JAKARTA - Indonesia's central bank will probably cut its benchmark interest rate by half a percentage point, the sixth reduction since May, to help revive consumer spending after inflation slowed to a two-year low. Bank Indonesia Governor Burhanuddin Abdullah and his fellow policy makers will cut the rate used as a reference for bills sales to 10.25 percent, according to 15 of 16 economists in a Bloomberg survey. One expects a reduction to 10 percent. The central bank decision is due in Jakarta tomorrow.
Lower borrowing costs will help companies such as PT Lippo Karawaci, Indonesia's biggest publicly traded real-estate company, resume construction of stalled projects and boost demand for homes, cars and electronic goods. Lippo Karawaci stopped building a shopping mall in west Jakarta after interest rates surged to 12.75 percent last year. "We will build the mall next year after the rate goes down to below 10 percent,'' Hendra A. Sugandi, a director of Lippo Karawaci, said in an interview. "A further rate cut will prompt consumers and property developer to access mortgage financing.''
Bank Indonesia raised its key interest rate six times in five months to December, to stem inflation after the government more than doubled fuel prices and to boost the rupiah from a four-year low. The rupiah has risen 7.8 percent this year, making it the second-best among 15 currencies Asia-Pacific currencies tracked by Bloomberg. It fell 0.03 percent to 9116 against the U.S. dollar on Nov. 3.
Stable currency
"I would think the rupiah will be stable as long as we move in a measured and judicious way,'' Coordinating Minister for Economic Affairs Boediono said in an interview on Nov. 1. There is more room for interest rate cuts, he said. The Indonesian government cut its economic growth forecast for this year to 5.6 percent from a previous forecast of 5.8 percent as investment has not improved as expected, Finance Minister Sri Mulyani Indrawati said on Oct. 16.
"Purchasing power is still weak, so the government has to give incentives,'' said Destry Damayanti, an economist at PT Mandiri Sekuritas in Jakarta. "The soft inflation figure'' will also embolden the central bank to extend rate cuts, she said.
Consumer prices in Southeast Asia's largest economy rose 6.3 percent in October from a year earlier, after gaining 14.6 percent in September. A decline in interest rates may also help boost car sales, Prijono Sugianto, vice chairman of the Indonesian Association of Automakers, said in a telephone interview.
Car sales
The association forecasts car sales to increase to 400,000 units next year from an estimated 350,000 this year, said Bambang Trisulo, chairman of Gaikindo on Oct 6. Indonesia sold 533,910 cars last year. Indonesia's car sales plunged by 23 percent to 34,108 units in September from 44,044 units a year earlier. In the first nine months of this year, car sales fell 40 percent as buyers deferred purchases because of high borrowing costs.
Indonesia's key interest rate is forecast to reach 8.5 percent next year and the central bank sees more room for a further cut this month and next month, said Deputy Governor Hartadi Sarwono on the sidelines of an investment conference in Jakarta on Nov. 2. Abdullah is aiming to reduce the rate to 10 percent this year.
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