[Kabar-indonesia] 5 RI Rate Cut Updates: Further Fall Expected [By Dow Jones, Bloomberg; Reuters]

[JoyoNews at aol.com]

5 updates:

- Dow Jones: Bank Indonesia Cuts Rates, 
  Further Fall Expected

- Reuters: Indonesia cuts interest rates 
  5th time this year

- Bloomberg: Indonesia Cuts Rate by 
  Half Point to Revive Spending 

- Datawatch - Bank Indonesia seen to 
  reduce BI rate to 10 pct yr-end: CIMB-GK

- Datawatch - Bank Indonesia's 50 bps rate 
  cut expected, more seen - StanChart

Bank Indonesia Cuts Rates, Further Fall Expected

By Phelim Kyne and I Made Sentana

JAKARTA, October 5 (Dow Jones)--Indonesia's central bank Thursday 
cut its benchmark interest rate by 50 basis points as part of a continuing
monetary policy loosening linked to falling inflation.

The cut is likely to be followed by further benchmark rate declines in
November and December, analysts say, as Indonesia reduces its
growth-sapping high interest rates to meet an ambitious gross domestic
product expansion forecast.

The central bank's board of governors decided to reduce the Bank
Indonesia rate to 10.75% in a widely anticipated move that marks the
fifth reduction in rates since the current monetary easing began in
May.

Bank Indonesia GovernorBurhanuddin Abdullah reiterated at a press
briefing Thursday that future cuts in the benchmark one-month rate
would hinge on easing inflation.

Bank Indonesia also cut its overnight deposit rate, called the
Fasilitas Bank Indonesia, or FASBI, by 50 basis points to 5.75%.

The rate cuts demonstrate Bank Indonesia's confidence that it has
successfully tamed on-year inflation, which peaked at 18.38% in
November 2005 after the government effectively more-than-doubled fuel
prices, said Standard Chartered economist Fauzi Ichsan.

Indonesia's on-year inflation declined to 14.55% in September from
14.90% in August.

Bank Indonesia will likely to cut its benchmark one-month rate by 25
basis points in November and in December to 10.25% by the end of the
year, Ichsan said.

"The U.S. Federal Reserve federal funds rate is likely to remain at
5.25% and the rupiah is stable...so there is the urge for Bank
Indonesia to cut interest rates more aggressively because the
(economy) is suffering," he said.

Indonesia's policy loosening began in the second half of 2005 to halt
an inflationary surge and reverse a slide of the rupiah against the
U.S. dollar.

Bank Indonesia's benchmark rate cuts shows how Asian countries
generally are using monetary policy to boost economic growth rather
than to tame inflation as expectations grow of a global slowdown.

The government of President Susilo Bambang Yudhoyono has projected
economic growth of 5.8% in 2006, outpacing a 5.6% expansion last year.
The government expects gross domestic product growth to accelerate to
6.3% in 2007.

Falling Inflation To Power More Rate Cuts

The central bank estimates that Indonesia's full-year economic growth
for 2006 will likely be "slightly above 5.5%", Abdullah said.

He said that Indonesia's economy likely grew 5.4% on year in the third
quarter of 2006.

That projection would outpace both the 5.22% expansion in the second
quarter and the 5.34% gross domestic product growth in the third
quarter of 2005.

Those estimates, and gross domestic product growth of only 4.97% in
the first half of 2006 from a year earlier, likely convinced
policy-makers that they need to intensify monetary measures in order
to meet the official growth target.

Bank Indonesia justified Thursday's benchmark rate cut on "continued
improving" macroeconomic indicators up to the end of the third quarter
of 2006, a central bank statement said.

"Bank Indonesia's Board of Governor's meeting today decided to cut the
BI rate by 50 basis points...after considering macroeconomic
conditions, results of various surveys of consumer and producer
expectations and prospects of the domestic and international economic
and monetary (situation)," the statement said..

Analysts and Bank Indonesia officials have said they expect the
benchmark Bank Indonesia one month rate to decline to around 10.00% by
the end of 2006 in line with an official forecasted fall in on-year
inflation to 7.00%-8.00% in the same time period.

Abdullah said that on-year inflation would ease to around 6.7% by
end-2006 and fall further to around 6.0% by the end of 2007.

"Inflation is looking very pretty and this is something that Bank
Indonesia would be looking at over the next two months (in deciding
additional rate cuts)," Action Economics economist Mayank Mehta said.

Mehta expects the benchmark Bank Indonesia rate to decline to 10.00%
by end-2006.

A likely steep fall in on-year inflation in October as fuel price
increases in October 2005 drop out of the inflation equation may
accelerate monetary policy loosening, a Lehman Brothers report said
ahead of the latest rate cut.

"We expect the (on-year) inflation rate to fall very sharply in
October to about 6%, which justifies aggressive rate cuts," the report
said. "By the end of this year the (Bank Indonesia) rate could be cut
to as low as 9% provided the rupiah remains firm."

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

Indonesia cuts interest rates 5th time this year

By Adriana Nina Kusuma

JAKARTA, October 5 (Reuters) - Indonesia's central bank cut its key
interest rate on Thursday by half a percentage point, the fifth
reduction this year, reflecting expectations that inflation in
Southeast Asia's biggest economy will continue to ease.

Central Bank Governor Burhanuddin Abdullah said there could be further
cuts in the benchmark BI rate <BIPG>, which now stands at 10.75
percent, down from a peak of 12.75 percent earlier this year.

"As long as inflation and risk factors are under control, there is
always room for more interest rate cuts, which will be done
gradually," he told a news conference.

Twelve analysts in a Reuters poll had expected the central bank to cut
the BI rate by 50 basis points, while four had expected a 25
basis-point cut.

The poll produced a median forecast for rates to drop to 10.25 percent
in November and 10.00 percent by the end of the year.

"The rate cut was in line with consensus expectations, and leaves Bank
Indonesia on track toward trimming its policy rate to 10.0 percent by
the end of the year," said Singapore-based economist David Cohen of
Action Economics.

"Their ability to cut the rate from a high of 12.75 percent at the
beginning of this year reflects their satisfaction with how inflation
was contained after the spike in fuel prices last October, and the way
the rupiah has firmed on foreign exchange markets," he said.

Annual inflation jumped to a six-year high of more than 18 percent in
November after the government more than doubled fuel prices. The
central bank responded by sharply raising interest rates.

Analysts said with interest rates now falling, consumer spending could pick 
up.

The economy grew at an annual rate of 5.2 percent in the second
quarter, partly on strong commodity exports.

The central bank said it expected annual growth to pick up in the
third quarter to 5.4 percent and for full-year expansion to top 5.5
percent.

The government has an economic growth target of 5.8 percent this year.

The annual rate of inflation fell in September to 14.55 percent, its
lowest level in a year.

MARKETS STEADY AFTER CUT

Patricia Lui, managing analyst of Informa GlobalMarkets, said
financial markets expected annual consumer inflation to hit single
digits in October as the impact of last year's fuel price rises fades.

"Inflation is expected to remain in single digits for the rest of the
year and this should help BI achieve its 8 percent (inflation target)
by year-end."

Analysts said the rupiah would also maintain a wide yield advantage
over the U.S. dollar, offering it support in the foreign exchange
market. The U.S. benchmark fed funds rate stands at 5.25 percent.

The rupiah was trading at 9,215 to the dollar, unchanged from before
the announcement.

The Jakarta Composite Index <.JKSE> was up 0.39 percent at 0800 GMT,
having been almost unchanged on the day before the rate cut.

The rupiah has gained around 7 percent against the dollar so far this
year partly on foreign investment in Indonesian high-yielding assets.
(Additional reporting by Muhamad Ari and Johannes Mantiri)

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

Indonesia Cuts Rate by Half Point to Revive Spending 

By Aloysius Unditu and Arijit Ghosh

Oct. 5 (Bloomberg) -- Indonesia's central bank cut its benchmark interest 
rate by half a percentage point, the fifth reduction since May, to revive 
consumer spending after inflation last month slowed to a year's low. 

Bank Indonesia Governor Burhanuddin Abdullah reduced the rate used as a 
reference for bill sales to 10.75 percent. The move was forecast by 19 of 23 
economists surveyed by Bloomberg News. The measure rose to a high of 12.75 percent 
in December. The Jakarta-based bank also cut its year-end inflation target. 

The central bank expects lower borrowing costs to encourage consumers in 
Southeast Asia's largest economy to borrow to buy homes and motor vehicles, after 
a doubling of fuel prices and a surge in interest rates in 2005 resulted in a 
spending slowdown. Future rate cuts may depend on the movement of the rupiah, 
said economists including Ong Sin Beng. 

``All demand indicators, car sales and capital-good imports have picked up 
smartly in September,'' said Ong, an economist with JPMorgan Chase & Co. in 
Singapore. Given the lower rate differential with the U.S. Fed Funds rate ``it 
also means that inflows into the fixed-income market will be less. It makes the 
rupiah vulnerable to pullbacks.'' 

Indonesia's rupiah has dropped 5.1 percent since May 9, when the central bank 
started cutting rates. Bank Indonesia raised borrowing costs six times in the 
five months to December to help strengthen the currency and stem inflation 
after the government more than doubled fuel costs in October last year. 

Foreign Investors 

Overseas investors sold a net 3.2 trillion rupiah ($348 million) of bonds in 
September, according to central bank data, pushing the currency lower and 
increasing the risk of a higher inflation rate. 

Foreign holdings in government bonds fell to 54.97 trillion rupiah in 
September from 58.12 trillion rupiah in August, the second and the biggest decline 
this year. In June foreign ownership of government bonds dropped 0.1 percent, 
according to Bank Indonesia. 

Still, lower interest rates in Indonesia's $276 billion economy may help lift 
consumer spending, which grew 2.99 percent in the second quarter from a year 
earlier, little changed from a 2.94 percent increase in the previous three 
months. 

The rupiah gained 0.1 percent to 9,209 against the U.S. dollar at 4:05 p.m. 
in Jakarta. The rupiah's trading range of 9,000 to 9,500 against the dollar 
will help boost economic growth to as much as 6.5 percent next year, Senior 
Deputy Governor Miranda Goeltom said in an interview on Sept. 20. 

Indonesia's benchmark stock index gained 0.5 percent after the announcement 
as lenders rose on expectations lower borrowing costs will help boost earnings. 

Cars, Motorcycles 

Yamaha Motor Co, the world's second-largest motorcycle maker, raised its 2006 
sales forecast for Indonesia by 3.2 percent to 1.45 million units. PT 
Toyota-Astra Motor, the Indonesian venture of Japan's Toyota Motor Corp., said its 
vehicle sales in September jumped to the highest this year, as falling interest 
rates encouraged purchases. 

Toyota-Astra's domestic vehicle sales rose to 13,385 in September from 10,164 
the previous month, said Jodjana Jody, the company's sales head in Jakarta 
yesterday. The sales figure is the highest since January when Toyota-Astra sold 
13,191 vehicles. 

``The board of governors decided to cut the rate after lengthy discussions on 
macro-economic conditions and results of various surveys on consumer and 
producer expectations,'' Bank Indonesia said in a statement today. ``Up to the 
third quarter of 2006, Indonesia's economy continued to improve and financial 
stability was maintained.'' 

Faster Growth 

Indonesia's economy probably expanded 5.4 percent in the third quarter and 
will exceed the central bank's forecast for the year, Governor Abdullah said at 
a briefing. That would be the fastest pace of growth in five quarters. 

``The impact for now is more felt on the consumption sector, which has 
started to rise,'' said Winang Budoyo, an economist at PT Bank Lippo. ``The interest 
rate on credits has not fallen as aggressively so the impact on the 
production sector may not be felt until the first quarter of next year.'' 

Bank Indonesia cut its inflation target to 6.7 percent for this year from 
between 7 percent to 9 percent, Deputy Governor Hartadi Sarwono said today. 
Consumer prices rose 14.6 percent in September after gaining 14.9 percent in 
August. 

``Looking ahead, if inflationary pressures and risks remain subdued, the 
possibility remains open for further reductions in the BI rate at a gradual, 
cautious pace,'' Bank Indonesia said in today's statement. 

Home Sales 

Governor Abdullah is aiming to reduce the central bank's key rate to 10 
percent this year and to 8.5 percent by the end of 2007 to help boost economic 
growth, which the International Monetary Fund forecasts will slow for the first 
time since 2001. 

The IMF expects the economy to expand 5.2 percent this year after growing 5.6 
percent in 2005. 

``As borrowing costs fall to 10 percent, sales of homes will increase,'' 
Ciputra, who uses one name and is the chairman of the Ciputra Group, which 
controls Indonesia's third-largest publicly traded property developer, said in an 
interview on Sept. 27. ``Housing sales particularly outside Jakarta fell by 50 
percent after the fuel price hike.'' 

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

Datawatch - Bank Indonesia seen to reduce 
BI rate to 10 pct yr-end - CIMB-GK

JAKARTA, October 5 (XFN-ASIA) - Bank Indonesia's policy or 'BI'
interest rate could fall to 10 pct by the end of the year after the
central bank continued its aggressive rate cutting stance today,
chopping the BI rate by 50 basis points for a third time in as many
months, CIMB-GK economist Kahlil Rowter said.

The central bank trimmed the rate to 10.75 pct, citing favorable
macroeconomic conditions, including falling inflation and the relative
stability of the rupiah.

Rowter said he had expected only a 25 bps cut as the rupiah had fallen
to above 9,200 to the dollar in late September from just below 9,100
earlier in the month.

"It seems that Bank Indonesia is confident its aggressive rate cut
will have limited impact on the rupiah," Rowter said.

Given its latest move, Rowter believes the central bank is now in the
process of "directing" the BI rate down to 10 pct by year-end.

"With two months left, and with the assumption that inflation will
remain low in the last quarter, BI could further cut the BI rate by 50
bps next month and another 25 bps in December," Rowter said.

Rowter said he had previously projected the key policy rate to end the
year at 10.50 pct and inflation at 8.5 pct but he is considering
revising those estimates down given better-than-expected September
inflation numbers.

Month-on-month consumer prices grew 0.38 pct and were up 14.55 pct
year-on-year, slightly below the August levels.

Rowter now believes the inflation rate could slip to around 7.2 pct by year 
end.

"This (expectation for a continued decline in the inflation rate) is
probably the reason why the central bank is now moving aggressively to
cut the BI rate," he added.

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Datawatch - Bank Indonesia's 50 bps rate cut expected, more seen - StanChart

JAKARTA, October 5 (XFN-ASIA) - Bank Indonesia's move to cut key
policy rate by 50 basis points (bps) to 10.75 pct was "in line with
our expectations", and receding inflation pressure gives the bank room
for further cuts this year, Standard Chartered economist Fauzi Ichsan
said.

The central bank earlier today cited favorable macro economic
conditions, including easing inflation and the relative stability of
the rupiah for making its third 50 bps cut in as many months. .

Ichsan said he expects the BI rate to fall to 10.25 pct by year end,
based on the assumption that consumer price inflation weakers in the
last quarter.

"Our expectation is that Bank Indonesia will cut the BI rate by 25
basis points next month and another 25 basis points in December on the
back of low year-on-year inflation in the quarter," he added.

He sees the year end CPI rate at 7.5 pct, compared to 17.11 pct at the
end of 2005.

Ichsan noted that the strong inflationary pressure that followed last
October's sharp fuel price hike should have faded away in the last
quarter this year.

One other factor that is likely to encourage the central bank to cut
its policy rate further is that a slowdown in the US economy is
expected to encourage the US Federal Reserve to keep its own target
rate at current levels for the time being.

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Joyo Indonesia News Service
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