[Kabar-indonesia] BI May Cut Key Policy Rate for Sixth Time Since May

[Joyo at aol.com]

Bank Indonesia May Cut Key Policy Rate for Sixth Time Since
May

By Aloysius Unditu

Nov. 6 (Bloomberg) -- 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.

The following is a table of economists' estimates for the
central bank's reference rate.

-------------------

Bank Indonesia Rate 

Median 10.25% 
Average                       
10.23% High
10.25% Low                           
10.00% 
Number 16

Firm: 

Action Economics 10.25% 
Bahana Securities 10.25% 
Bank Intl Indonesia  10.00% 
Bank of America 10.25% 
Danareksa Securities 10.25% 
DBS Group 10.25% 
Forecast Ltd.10.25% 
HSBC Singapore 10.25% 
Ideaglobal 10.25% 
ING Groep NV 10.25% 
LippoBank 10.25% 
Mandiri Securities 10.25% 
Nomura Securities 10.25% 
PT. CIMB-GK Securities  10.25% 
PT. Mega Capital 10.25% 
UOB Group 10.25%

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Joyo Indonesia News Service
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