[Kabar-indonesia] BI Deputy Sees Room for Rate Cut [+Outlook]

[JoyoNews at aol.com]

also: Outlook - Bank Indonesia to cut key rate by 50 basis points on Thursday

Indonesia c.bank deputy sees room for rate cut

JAKARTA, Oct 4 (Reuters) - The senior deputy governor of Indonesia's central 
bank said on Wednesday there is room for an interest rate cut at this week's 
policy-setting board meeting.

Miranda Goeltom did not elaborate on the potential size of a cut at 
Thursday's meeting.

A Reuters poll of 16 analysts showed 12 expecting the bank to cut the BI rate 
by 50 basis points from 11.25 percent, while only four expected a 25 basis 
point 
cut.

Bank Indonesia jacked up its reference rate to 12.75 percent in the second 
half 
last year, its highest level in around three years, from 8.5 percent, to 
tackle inflation which hit its highest in around six years, and prop up the rupiah.

As the effect of last year's fuel price hike fades, the central bank has said 
annual inflation could fall to around seven percent by year-end, and it also 
expects the interest rate to fall to between 10-10.5 percent by the end of the 
year.

Since the start of this year, the monetary authority had slashed the rates by 
a 
total of 150 basis points. 

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

Outlook - Bank Indonesia to cut key 
rate by 50 basis points on Thursday

JAKARTA, October 4 (XFN-ASIA) - Bank Indonesia's board of governors
will likely vote to cut the key policy rate by 50 basis points (bps)
for a third straight month when they meet on Thursday, eight out of 12
economists polled by XFN Asia said.

The key rate, called the BI rate, has fallen to 11.25 pct this year
with the central bank having so far cut it by a cumulative amount of
150 bps in four separate reductions.

Analysts picking a 50 bps cut cited the pullback in consumer price
pressures in September compared to August, and expectations that
inflation will remain muted for the rest of the year. They expect the
consumer price index (CPI) to be close to 7 pct the end of the year.

Four of the economists though feel the BI may opt for a less
aggressive cut of around 25 bps, partly due to some weakness in the
rupiah over the past month.

By the end of the year, the economists projections for the BI rate
ranged from 9.75 pct to 10.75 pct.

The consumer price index (CPI) in September rose 0.38 pct from August
and was up 14.55 pct year-on-year. Analysts had estimated gains of
between 0.3-0.60 pct month-on-month and 14.5-14.81 pct year-on-year.

ING economist Prakash Sakpal gave one of the most optimistic
forecasts, picking the BI to cut the rate by both 50 bps this week and
again by the same amount over the following two months.

Given that the September data, points to a softening of inflation
pressure going forward, Citigroup economist Anton Gunawan said he
expects a 50 bps cut Thursday.

However Action Economics director of Asian economic forecasting David
Cohen said the size and number of reductions in coming months 'will be
a close call.'

He expects a 25 bps reduction this month, and 50 bps cuts in November
and December.

Cohen stressed that the bank is likely to be a tad cautious this
month, taking into account slippage in the rupiah over the past month,
which could have been the result of a funds shifts following a
narrowing of the interest rate differential between the Federal
Reserve and BI.

The rupiah had slipped to 9,225 to the US dollar at end September from
9,105 at the end of August, marking a 1.3 pct fall. Analysts have said
the local currency's slide was probably in tandem with weakness seen
in some other regional currencies on nervousness sparked by the
military coup d'etat in Thailand last month.

CIMB-GK economist Song Seng Wun said that while his house expects a 25
bps cut this month, he believes a 50 bps cut remains 'quite doable'.

Song sees the year-on-year inflation rate in October falling to single
digit levels, although on a monthly basis it is likely to gain because
of the short-lived impact of the Idul Fitri festival, when prices of
food, clothing and transportation typically gain.

'(Month-on-month) inflation will go up in October from September but
if we look ahead there is room to cut the BI rate aggressively,' he
said.

Song said the central bank should continue to move swiftly and
decisively to bring down rates in order to boost domestic consumption,
a key contributor to the country's economy.

At the same time, he noted that rather than worrying that cuts will
narrow the rates differential with the US and push some funds into US
assets, investors should be heartened that cheaper local rates provide
a greater incentive to plough money into Indonesia.

'Rather than worrying about the interest rate differential, the rate
cut could actually attract more inflows,' Song said.

Mandiri Securities economist Destry Damayanti shared the view that the
central bank can cut the BI rate by a further 50 bps this month but
she said it would be unwise for the bank to cut too aggressively.

'The BI needs to keep an attractive interest rate gap to guard the
rupiah (from being sold down heavily),' she noted, adding that she
expects the BI rate to finish the year at 10.25 pct.

Below is a summary of analysts' forecasts for the BI rate in October
and by year-end:

1. Danareksa - 10.75 pct (October); 9.75 pct (yearend)

2. ING - 10.75 pct (October); 9.75 pct (yearend)

3. DBS - 10.75 pct (October); 10.00 pct (yearend)

4. Citigroup - 10.75 pct (October); 10.00 pct (yearend)

5. Bank Lippo - 10.75 pct (October); 10.25 pct (yearend).

6. Mandiri - 10.75 pct (October); 10.25 pct (yearend)

7. ANZ - 10.75 pct (October) 10.25 pct (yearend)

8. Standard Chartered Bank - 10.75 pct (October); 10.25 pct (yearend)

9. CIMB-GK - 11.00 pct (October); 10.25-10.50 pct (yearend)

10. BII - 11.00 pct (October); 10.00 pct (yearend)

11. IDEAglobal.com - 11.00 pct (October); 10.75 pct (yearend)

12. Action Economics - 11.00 pct (October); 10.00 pct (yearend)

------------------------------------------
Joyo Indonesia News Service
------------------------------------------