JAKARTA: Indonesia's annual inflation slowed in February but stayed above the central bank's target range of 4-6 percent, and analysts polled earlier expected Bank Indonesia to hike its benchmark interest rate again by 25 basis points to 7 percent when meeting on Friday.
January trade data released at the same time showed exports up 24.57 percent from a year earlier, while imports rose 32.24 percent from a year ago.
KEY POINTS:
Feb headline CPI up 6.84 pct y/y (forecast 7.12 pct rise)
Feb CPI up 0.13 pct m/m (forecast 0.40 pct rise)
Feb core CPI up 4.36 pct y/y (forecast 4.30 pct rise)
COMMENTS:
HELMI ARMAN, BANK DANAMON, ECONOMIST, JAKARTA
"This is below our forecast. We are not too surprised, but maybe the market will be a little bit surprised with these figures.
"Such low inflation will give Bank Indonesia more room to not rush to hike rates. We expect them to hike another 25 points closer to the second half. We expect BI rate to be at 7 percent and inflation to hit 7.2 percent by the end of the year.
MARKET REACTION:
The rupiah was down marginally 8,813 to the dollar as of 0430 GMT.
Indonesia's composite stock index rose after the announcement and was up marginally to 0.73 percent.
BACKGROUND:
Indonesia's annual inflation in February is seen building to a 22-month high, though the month-to-month gain is expected to have slowed as food prices have eased, analysts said.
February's annual inflation is estimated to reach 7.12 percent, slightly higher than 7.02 percent in January.
Core inflation -- excluding administered prices and volatile foods and being closely watched by the central bank's policy committee -- is also expected to pick up to 4.30 percent year-on-year. The country's finance minister said on Feb. 25 the government wanted the central bank to keep core inflation under 4.2 percent.
The central bank meets on Friday, March 4, to decide on policy and a narrow majority of analysts polled by Reuters see it raising rates by another 25 basis points to 7 percent. The central bank last month hiked rates to head off inflationary pressures, after holding them at a record low last year.
Bank Indonesia (BI) governor Darmin Nasution said last week he saw annual inflation below 7 percent in February, while deputy governor Hartadi A. Sarwono saw monthly inflation below 0.5 percent in February. Sarwono said BI was monitoring oil prices and would let the rupiah currency strengthen to curb imported inflation.
The Indonesian government's plan to scrap import duties on rice, wheat and soybeans may help reduce inflationary pressures, but Middle East turmoil has pushed up oil prices and may complicate policymaking.
Worries that the central bank was behind the curve in tackling inflation led foreign investors to sell Indonesian assets early this year, though the market has recovered some ground since BI turned more hawkish in its comments and followed regional peers in increasing rates.
The central bank has said it would prefer to use other policy tools than higher interest rates, which could attract greater capital inflows or dampen loan growth. Bank Indonesia aims to support an economy seen growing by 6.4 percent this year.
Comments
Comments are closed.