Indonesia’s central bank will probably cut its benchmark interest rate for a fourth straight month to help protect the economy from the global recession.
Governor Boediono and his seven colleagues will lower the key rate to 8% from 8.25%, according to 12 of 18 economists in a Bloomberg News survey. Six predict a half-point cut. The decision is due in Jakarta today.
Exports from Indonesia plunged the most in more than 22 years in January as the world economy’s worst crisis since the Great Depression crimped demand for made-in-Asia products. Merrill Lynch & Co last week cut its 2009 growth forecast for Southeast Asia’s biggest economy to 3.6%, the weakest pace of expansion since 2001.
Indonesia’s economy has slowed substantially and “growth in manufacturing has pulled back significantly as sales of motor vehicles plummeted,” said Helmi Arman, an economist with PT Bank Danamon Indonesia in Jakarta. “This warrants further aggressive interest-rate cuts.”
Car sales at the Indonesian unit of Toyota Motor Corp and rivals fell 23% to 31,637 in January, the lowest in 15 months. Motorcycles sales fell 22% in the month.
Overseas shipments plunged 35.5% to US$7.15 billion from a year earlier, the Central Statistics Bureau said March 2. That’s the biggest drop since 1986. Consumer prices rose 8.6% in February from a year earlier, the smallest increase in 11 months.
Finance minister Sri Mulyani Indrawati on March 2 said she expects consumer-prices gains to slow every month until July. Bank Indonesia is targeting to keep inflation within 5% to 7% this year.
Manufacturers in Japan, Indonesia’s biggest export market, cut production by a record 10% in January, adding to evidence the economy is in its worst recession in 60 years.
“Our Japanese economist is now forecasting a sharp recession for the economy this year which means this downward trend in Indonesian export growth is unlikely to reverse any time soon,” Chan Kok Peng, chief economist at BNP Paribas Securities Asia in Singapore, said in a note on March 2.
The government forecasts the US$433 billion economy to grow 4.5% this year, after a 6.1% expansion in 2008. To sustain growth, the government has proposed a 73.3 trillion rupiah stimulus package. Indonesia last week sold US$3 billion of dollar-denominated bonds to help finance its spending.