Indonesia March inflation seen at bottom of central bank target range: Reuters poll

A vegetable seller reaches for money from a customer at a market in Jakarta
A vegetable seller reaches for money from a customer at a market in Jakarta, Indonesia, June 2, 2017. REUTERS/Beawiharta

March 29, 2019

JAKARTA (Reuters) – Indonesia’s annual inflation rate likely slowed for a fourth straight month in March to a decade low and hit the lower end of the central bank’s target range, according to a Reuters poll.

March’s annual inflation rate is forecast by 13 analysts to ease to 2.50 percent on year, compared with February’s 2.57 percent, and right at the floor of Bank Indonesia’s (BI) 2.5-4.5 percent target range.

If proven correct, the March reading would be the lowest since late 2009, Refinitiv Eikon data showed.

“The harvest that began at the end of February continued through the month so prices of produces were very low, but rising plane ticket prices might have driven inflation,” said Damhuri Nasution, chief economist of Danareksa Research Institute.

Low inflation readings in recent months have prompted a growing number of analysts to argue that BI has room to unwind its six interest rate hikes last year and take advantage of the dovish stance taken by the world’s major central banks.

However, Nasution cautioned against a premature rate cut by BI, saying inflation might accelerate later in the year if the government adjusts prices after the April 17 elections or if the El Nino weather pattern hits crops.

Bank Mandiri’s economist Andry Asmoro predicted inflation to bounce back to 3.79 percent at the end of the year.

Underpinning the current benign inflation are President Joko Widodo’s populist policies of keeping fuel and electricity tariffs flat, while maintaining food prices low by setting maximum retail prices for some foodstuffs and stocking enough supply through imports.

Widodo is running for re-election against retired general Prabowo Subianto in a rerun of the 2014 race.

At its latest policy meeting on March 21, BI predicted inflation would stay within its target range through 2019, while keeping rates unchanged.

In the poll, the March core inflation rate, which excludes government-controlled and volatile food prices, was seen at 3.06 percent or at the same pace as in February.

(Polling by Nilufar Rizki and Tabita Diela; Writing by Gayatri Suroyo; Editing by Subhranshu Sahu)

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