Indonesian Growth Seen Exceeding 6% Reduces Need for Rate Cut
By Novrida Manurung and Sharon Chen – Nov 1, 2012
Indonesia’s economic growth probably held above 6 percent last quarter, as domestic spending and rising investment countered falling exports, giving the central bank room to refrain from cutting interest rates.
Gross domestic product probably grew 6.2 percent in the three months through September from a year earlier, according to the median estimate of 12 economists surveyed by Bloomberg News ahead of a government report due Nov. 5. The economy expanded 6.37 percent in the previous quarter. Bank Indonesia will probably keep its benchmark rate at 5.75 percent on Nov. 8, according to all 11 economists in a separate survey.
Policy makers in Southeast Asia’s biggest economy have avoided adding to a February rate cut even as neighbors from Thailand to the Philippines extended monetary easing to counter faltering global growth. The rupiah is Asia’s worst-performing currency this year, boosting import costs and pushing inflation to a 13-month high in October.
“There’s less need to ease because the domestic economy is running quite hot,” said Eugene Low, a Singapore-based economist at DBS Group Holdings Ltd. “Indonesia will be resilient and all the indicators so far in terms of consumption have been supportive,” said Leow, who expects a 75 basis-point increase in interest rates by the end of 2013.
The rupiah has fallen almost 6 percent against the dollar this year, the biggest decline among 11 widely-traded Asian currencies tracked by Bloomberg. The benchmark Jakarta Composite index has gained about 13 percent.
President Susilo Bambang Yudhoyono has pledged to build more highways, airports and ports to improve infrastructure and meet an economic growth target of an average 6.6 percent by the end of his second term in 2014. Domestic investment in the third quarter climbed 33 percent and foreign direct investment advanced 22 percent from a year earlier, government data showed last month.
“Domestic demand remains strong,” said Eric Alexander Sugandi, an economist at Standard Chartered Bank Plc in Jakarta. “So the central bank will keep interest rates at the current level in November to support the economy and the rupiah.”
Malaysia’s central bank is also due to announce its policy decision on Nov. 8.
Indonesia’s exports fell 9.4 percent in September from a year earlier, a report showed yesterday, a sixth straight month of declines. Consumer prices climbed 4.61 percent in October from a year earlier.
Still, the manufacturing Purchasing Managers’ Index climbed to 51.9 from 50.5 in September, HSBC Holdings Plc and Markit Economics said yesterday, and strong local demand has boosted revenues of companies. PT Bank Mandiri, the country’s biggest lender by assets, posted a 39 percent jump in third-quarter profit to the highest level in at least nine years.