(Thomson Financial) - Indonesia's inflation data for
March, due next Tuesday, is expected to show a sharp
annual increase in March and prompt the central bank
to keep its key BI rate on hold instead of yielding to
expectations for an interest rate cut.
On a monthly basis, the consumer price index (CPI) may
reflect a slowdown, given that food prices reached
abnormally high levels in recent months on the back of
record global commodity prices, according to estimates
by most economists polled by Thomson Financial.
"I think the danger about the CPI data is that
although it is easing on a monthly basis, the annual
rise is even higher. That will spark negative
sentiment," said Anton Gunawan, an economist at Bank
Danamon Indonesia.
Forecasts for the CPI by the 10 economists polled by
Thomson range from a rise of 0.21-0.5 percent in March
from February. In February, the CPI was up 0.65
percent from the preceding month.
Year-on-year, the CPI is expected to show a rise of
between 7.37 percent and 7.63 percent. This range
compares with the actual annual increase of 7.4
percent posted in February, driven by food prices.
One basic assumption for a month-on-month slowdown is
a decline in rice prices following the start of the
harvest season this month in some parts of the
country, said Destry Damayanti, an economist at
Mandiri Securities.
"I think some food components like spices, cooking
oil, still rose but not as strongly as in the previous
month. We may also see pressure from kerosene prices
during the month," Bank Danamon's Gunawan said.
Kerosene prices in some cities were driven higher by
scarce supply as a result of the government's program
to replace non-subsidized kerosene, which is used
mostly by poor families for cooking, with liquefied
petroleum gas (LPG) to reduce its burden of oil
subsidies.
Apart from the fall in rice prices, fiscal measures
such as the removal of import tax on wheat and soybean
should have also helped stabilize food prices, said
Eric Sugandi, an economist at Standard Chartered Bank.
Monetary implications Amid threats of mounting prices,
the central bank is expected to keep its key interest
rate unchanged in April, instead of giving in to
expectations for a rate cut, economists said.
The BI rate has been steady at 8.0 percent over the
last four months, a level viewed by many as high
enough to contain inflation in the coming months. The
monthly CPI in April is bound to be pushed up by the
same risks faced by the global economy, which require
central banks to balance out the effects of
accelerating inflation and slowing economic growth.
The CPI in April 2007 was down 0.16 percent from
March.
"Like many central banks across the region, BI is
likely to remain patient in the face of growing
uncertainties surrounding the conflicting pressures of
accelerating inflation versus a potential global
economic slowdown, " said David Cohen, an economist at
Singapore-based Action Economics.
The threat of rising food and energy prices will
continue to fuel inflation going forward, making it
difficult to cut interest rates, said Mandiri's
Damayanti.
"I don't see BI easing rates should inflation stay
above 7.0 percent, although toward the latter part of
the year we must reassess the situation" said Gundy
Cahyadi, an economist at Ideaglobal Ltd in Singapore.
Damhuri Nasution, an economist at Danareksa Research
Institute, said Bank Indonesia will certainly keep the
BI rate steady to maintain real interest rates in the
range of 1.5-2.0 percent.
Eric Sugandi of Standard Chartered said in the event
the central bank finds a reason to cut its rates, the
earliest it would do so would be in May, when food
prices are expected to ease.
Damayanti said she is maintaining her year-end
inflation forecast at 7.5 percent and the BI rate at
8.0 percent.
Following is a summary of forecasts for monthly and
annual CPI changes, along with the BI rates: 1. Mega
Capital - up 0.19 percent; up 7.35 percent; 8.0
percent 2. BII - up 0.21 percent; up 7.37 percent: 8.0
percent 3. Ideaglobal Ltd - N/A; up 7.4 percent; 8.0
percent 4. Danareksa - up 0.24 percent; up 7.40
percent; 8.0 percent 5. Bank Lippo - up 0.30 percent;
up 7.46 percent; 8.0 percent 6. StanChart - up 0.30
percent; up 7.5 percent; 8.0 percent 7. Mandiri
Securities - up 0.33 percent; up 7.5 percent; 8.0
percent 8. Action Economics - up 0.5 percent; up 7.5
percent; 8.0 percent 9. Bank Danamon - up 0.28
percent; up 7.44 percent; 8.0 percent 10. Samuel
Securities - up 0.47 percent; up 7.63 percent; 8.0
percent [EMAIL PROTECTED] alo/nt --- By
Aloysius Bhui --- ab/nt/nt COPYRIGHT Copyright Thomson
Financial News Limited 2008. All rights reserved.
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