Bloomberg News

Indonesia May Need to Tighten Monetary Policy in 2012, OECD Says

November 28, 2011

Nov. 28 (Bloomberg) -- Indonesia may need to tighten monetary policy in 2012 as higher fuel prices boost inflationary pressure and domestic demand helps Southeast Asia’s largest economy weather a slowdown in global trade, the OECD said.

The nation’s consumer prices will accelerate 5.9 percent in 2012 from an estimated 5.6 percent this year, The Organization for Economic Cooperation and Development forecast in its global economic outlook report, released today. Gross domestic product will grow 6.1 percent, less than this year’s forecast of 6.3 percent, the report said.

“Monetary policy will need to tighten in 2012, unless Indonesia is hit by unforeseen adverse events,” the OECD said. “Inflation could exceed the target range in 2012 owing to temporary effects from energy-subsidy reductions, but should fall back inside the range in 2013.”

Bank Indonesia unexpectedly lowered its reference rate by half a percentage point this month to a record-low 6 percent to shield the economy from a faltering global recovery. The country has fared better than neighbors including Thailand, Malaysia and Singapore, which slid into recession in 2009, because it’s less reliant on exports.

“The economy’s orientation towards domestic demand and strong consumption and investment growth shields it from weaknesses abroad,” the OECD said in the report. “Economic growth is thus expected to exceed potential rates in the next two years despite the slowdown in the OECD area.”

The central bank forecasts 2012 inflation of between 3.5 percent and 5.5 percent, compared with this year’s estimated 4 percent to 6 percent, it said in a statement Nov. 10. The economy may expand 6.5 percent this year and next year, it said.

The Indonesian rupiah fell 0.4 percent last week, compared with a drop of 1.3 percent in Thailand’s baht and a 1.2 percent decline in Malaysia’s ringgit, according to data compiled by Bloomberg. The currency slid 0.7 percent to 9,115 rupiah per dollar as of 4 p.m. in Jakarta after falling as much as 1.8 percent earlier, according to prices from local banks compiled by Bloomberg.

--Editors: Greg Ahlstrand, Lars Klemming

To contact the reporter on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net;

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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