Economic Highlights
March inflation numbers would be released on Thursday next week (1/4). We expect to see a monthly deflation of 0.24%, which is contributed mostly by a decline in food prices. The year on year headline may thus decline to 3.34%, from 3.81% in the previous month.
Government reports suggest that the prices of rice have declined as the harvesting period approaches. International sugar prices also dropped by close to 20% m-o-m, amid increased global production. This was probably followed to some extent by domestic sugar prices.
These commodity price declines may have also led to a drop in the year on year core inflation figure, from last month’s 3.9% reading. Sugar is included in the processed food component, along with certain derivatives of rice. However we also expect core inflation to have been benign in the absence of strong demand-pull inflationary pressures.
BI will meet to discuss interest rates on 6-Apr-10. We expect policymakers to keep the BI rate unchanged at 6.50%. BI currently doesn’t seem too worried about inflation; its latest move to cut down the issuance of 1M SBIs has had an impact similar to a hidden rate cut—as it led to a bull-steepening of money market interest rates. We maintain our base case for the first rate hike to come in early-2011.
Separately we expect the Feb-10 trade balance to have remained in surplus, but slightly narrowed to $1.75bn from $2.03bn in the previous month.
External demand appears to be still on a rising trend, as shown by the continued rise in global industrial production. However in February, average prices of Indonesia’s key export items; e.g. oil and coal slightly declined. And China trade data also shows a monthly contraction in imports of coal and CPO during the month.
We expect exports may have been slightly lower month on month, while imports probably increased in-line with the gradual recovery in domestic demand.
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