By Aloysius Unditu and Michael J. Munoz
May 5 (Bloomberg) -- Indonesia’s central bank will probably cut its benchmark interest rate for a sixth straight month to help sustain consumer spending amid slowing inflation.
Governor Boediono will reduce the key rate to 7.25 percent from 7.50 percent, according to all 17 economists in a Bloomberg News survey. That would be the lowest since the bank introduced the measure in July 2005. The decision is due in Jakarta today.
Policy makers across Asia are slashing borrowing costs and boosting spending to counter the worst global recession since World War II. The Asian Development Bank expects growth in Indonesia’s $433 billion economy to weaken to as little as 3.6 percent this year from 6.1 percent in 2008.
“Growth is likely to be below trend,” said Wai Ho Leong, a regional economist at Barclays Capital in Singapore. “The perception in policy circles is that more support for the economy may be needed.”
Southeast Asia’s largest economy probably expanded between 4.3 percent and 4.8 percent in the first quarter of this year, the slowest in a decade, as exports slumped and commodity prices plunged from record levels, according to Finance Minister Sri Mulyani Indrawati.
Indonesia needs to rely on domestic consumption to rekindle growth as shipments and investment fall, Sri Mulyani said.
Overseas sales from Indonesia dropped 28.8 percent in March to $8.54 billion from a year earlier, following a 32.8 percent decline in February.
Cars, Cement
Vehicle sales at the Indonesian unit of Toyota Motor Corp. and rivals fell 27 percent to 34,127 units in February. Cement sales dropped 12.5 percent to 2.95 million metric tons in March from a year earlier.
Private consumption, which accounts for about two-thirds of the economy, is expected to increase between 4.3 percent and 5 percent in the first quarter of 2009, Sri Mulyani said April 29. That would be the weakest pace in two years.
Bank Indonesia has scope to lower interest rates as inflation eases. Consumer prices rose 7.3 percent in April from a year earlier, the smallest increase in 16 months.
Inflation may slow to below 5 percent in June, central bank Deputy Governor Hartadi Sarwono told Bloomberg News in a May 2 interview in Bali.
“Inflation is trending down,” Sarwono said. “Exports are definitely going to decline, so the most important policy is to stimulate domestic demand.”
The Philippine central bank cut its key interest rate to a 17-year low of 4.5 percent last month and Thailand reduced its benchmark interest rate to 1.25 percent, the lowest level since July 2004.
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Observation Period May June July End
5 3 3 2009
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Median 7.25% 7.00% 7.00% 7.00%
% forecasts at Median 100.0% 90.9% 72.7% 75.0%
High 7.25% 7.25% 7.25% 7.25%
Low 7.25% 7.00% 6.75% 6.50%
Number of Estimates 17 11 11 12
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Action Economics 7.25% 7.00% 7.00% 7.00%
Bahana Securities 7.25% 7.00% 6.75% 6.50%
Bank Central Asia 7.25% -- -- --
Bank Danamon 7.25% -- -- 7.00%
Bank Intl Indonesia 7.25% 7.00% 7.00% 7.00%
BNI Securities 7.25% 7.00% 6.75% 6.50%
Capital Economics Ltd. 7.25% -- -- --
CIMB Niaga Bank 7.25% 7.00% 7.00% 7.00%
Danareksa Securities 7.25% 7.25% 7.25% 7.25%
DBS Group 7.25% 7.00% 7.00% 7.00%
HSBC 7.25% 7.00% 7.00% 7.00%
Ideaglobal 7.25% 7.00% 7.00% 7.00%
ING Groep NV 7.25% -- -- --
Nomura Singapore Limited 7.25% -- -- --
PT. Mega Capital 7.25% -- -- --
Standard Chartered 7.25% 7.00% 7.00% 7.00%
Westpac Banking 7.25% 7.00% 7.00% 7.00%
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To contact the reporters on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net
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