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

[Joyo at aol.com]

Bank Indonesia Cuts Key Policy Rate for Sixth Time Since May

By Aloysius Unditu and Arijit Ghosh

November 7 (Bloomberg) -- Indonesia's central bank 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 cut the rate used as a reference for bills
sales to 10.25 percent. The move was expected by 15 of 16
economists in a Bloomberg survey.

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. The government
expects lower interest rates and an increase in investment
to help boost economic growth by 6.3 percent in 2007, the
fastest pace in 11 years.

``It would definitely give some boost to the economy,'' said
Suryanto Sandjaja, who helps manage the equivalent of $86
million at First State Investments in Jakarta. ``Consumers
are borrowing at lower rates.''

Lippo Karawaci, which stopped building a shopping mall in
west Jakarta after interest rates surged to 12.75 percent
last year, may resume the construction of the mall after
borrowing costs fall below 10 percent, Hendra A. Sugandi, a
director of Lippo Karawaci, said in an interview.

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.

Currency Gains

The rupiah has risen 7.7 percent this year, making it the
second-best among 15 currencies Asia-Pacific currencies
tracked by Bloomberg.

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.

``We have seen the trend of inflation this year and
especially in October and looking at our inflation target
for this year, we think there is room to cut interest
rates,'' Governor Abdullah told reporters in Jakarta
yesterday.

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.

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.
Car Sales

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.

``The cuts sends a positive signal to the market,'' said
Vera Eve Lim, chief financial officer of PT Bank Danamon.
``The government really wants to boost economic growth. We
are optimistic for 2007. Assuming inflation remains low, we
will see more positive things next year.''

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.

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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Joyo Indonesia News Service
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