Indonesia’s Consumer Prices Rise Less Than Expected

By Aloysius Unditu

Nov. 2 (Bloomberg) -- Indonesia’s consumer prices rose less than expected in October, easing pressure on the central bank to start increasing borrowing costs to tame inflation.

Consumer prices in Southeast Asia’s largest economy rose 2.57 percent from a year earlier after gaining 2.83 percent in September, the Central Statistics Bureau said in Jakarta today. That was less than the 2.83 percent median forecast in a Bloomberg News survey of 17 economists.

Asian central banks led by Australia and India have started to exit from the monetary stimulus adopted to protect the region from the worst global recession since the Great Depression. ING Groep NV expects Bank Indonesia to follow suit in the first three months of next year.

“Accelerating inflation will lead Bank Indonesia to be among the first Asian central banks to hike rates,” said Tim Condon, chief Asia economist at ING in Singapore. “We forecast a first rate hike in the first quarter of 2010.”

The Reserve Bank of Australia will probably raise its overnight cash rate target by a quarter point to 3.5 percent tomorrow, according to 22 of 28 economists in a Bloomberg News survey. The others expect an increase of 50 basis points.

Australia’s central bank last month became the first among Group of 20 nations to increase borrowing costs since the height of the global credit squeeze.

‘Unconventional’ Steps

The Reserve Bank of India in its Oct. 27 monetary policy statement said the “unconventional” steps taken during the global slump can now be reversed. Governor Duvvuri Subbarao ordered lenders to keep more cash in governments bonds, increasing the central bank’s statutory liquidity ratio to 25 percent from 24 percent.

Indonesia’s central bank last cut borrowing costs on Aug. 5 when it lowered its benchmark rate by a quarter of a percentage point to 6.5 percent. That was the ninth consecutive reduction and took the cumulative policy easing to 300 basis points.

Deputy Governor Hartadi Sarwono on Oct. 22 said that Bank Indonesia’s scope to lower rates has become “limited,” indicating that borrowing costs are now more likely to go up rather than down.

“Bank Indonesia is expected to keep policy rates on hold,” said Johanna Chua, head of Asian economic research at Citigroup Inc. in Hong Kong. “We don’t expect Bank Indonesia will signal a more concrete sign of an ‘exit strategy’ until sometime in the first quarter of 2010 when headline inflation should move higher and more central banks globally start hiking or increasingly talk about exit strategies.”

Energy Prices

Indonesia’s central bank is predicted to maintain its benchmark rate at 6.5 percent when it meets on Nov. 4, according to all 19 economists in a Bloomberg News survey.

Inflation may quicken in the coming months amid higher energy prices and faster economic growth.

PT Perusahaan Listrik Negara, Indonesia’s state utility, said in September that it’s proposing an increase in electricity tariffs of as much as 30 percent next year.

Indonesia’s $514 billion economy is expected by the central bank to expand 5.5 percent next year after estimated growth of 4.3 percent in 2009.

From a month earlier, Indonesian consumer prices increased 0.19 percent in October after gaining 1.05 percent in September, the statistics office said today.

Indonesia’s exports fell 19.9 percent in September from a year earlier after dropping 15.4 percent in the previous month, according to today’s report. Imports slid 32.8 percent after a 24.6 percent decline in August.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net