Mandiri Sekuritas Economy

Jan09 CPI figure: Another round of deflation?
On Monday (2/1), the statistical bureau will announce Jan09 inflation
figure, which we estimate to be a deflation of 0.23% mom, bringing annual
inflation to a single digit of 8.96%.
Relatively stable food prices, coupled with more aggressive administered
price cut, in January will likely result in a monthly deflation in January,
which historically posted above 1% monthly inflation.
Declining inflation outlook and weaken domestic demand would
encourage BI to further cut benchmark rate in the next governor board
meeting (2/4). BI may continue to cut the rate by 50bps to 8.25% in
order to jump start the economy. Currently we maintain our inflation
forecast at 6.8% yoy and BI rate at 8% by the end of 2009.
Moreover, BI may continue to narrow the SBI and BI rate spread in order
to intensify the monetary policy transmission. In Jan09, the SBI 1mo has
declined by more than 100bps vs. 50bps cut in the benchmark rate.


Dec-09 MS Forecast Market Consensus
Headline Inflation (% yoy) 11.06 8.96 9.7
Headline Inflation (% mom) -0.04 -0.23 -
Headline Inflation (% ytd) 11.06 -0.23 -
Core Inflation (% yoy) 8.29 - -



Government secured external financing to back budget deficit.

We had a meeting with Anggito Abimanyu, Head of Fiscal Policy, Ministry of
Finance yesterday. Some takeaways from the meeting as follows:

To stimulate the economy in 2009 and to response to changes macroeconomic fundamentals, the government plan to
increase budget deficit to 2.5% of GDP (US$12bn) from 1% of GDP (US$5.5bn).
The fiscal stimulus planned to reached Rp71.3tn (1.4% of GDP), of which Rp43tn in the form of tax saving and
Rp10.2tn of cash injection to the economy.
Government has secured additional stand by loan from multilateral and bilateral of US$5.5bn, besides 2008 budget
financing surplus of US$5bn to finance the additional budget deficit. Government bond issuance is set to be unchanged
at US$5bn.
But the caveat remains on the ability of the government, both local and central government to spend the budget early
and parliament decision to approve the proposed budget.