Consumer price index increased 0.15% mom in Apr10, bringing yoy inflation to 3.91% yoy higher than previous month inflation of 3.44% yoy. Higher raw food prices were the main driver for the inflation.
Despite being above ours and consensus expectations, inflation would likely remain under control and still in line with our inflation projection for this year. The more persistent component of inflation, core inflation, has not been showing an alarming upward change. Core inflation only recorded a meager increase to 3.70% yoy in Apr10 from 3.56% yoy a month earlier, which we think supported by stronger exchange rate.
We do not expect a significant change in Bank Indonesia’s (BI) monetary policy stance. BI is likely to maintain its policy rate at 6.5% in the next board meeting as strong inflows of capital and tame inflation would provide room to maintain the benchmark rate unchanged.
External balance remains healthy. Exports grew by 46.6% yoy in Mar10 to US$12.6bn. Imports grew by 68.6% yoy, which brought trade surplus down slightly to US$1.58bn. Overall, external demand is likely to remain positive to the economy in 1Q10 as Indonesia recorded total US$5.4bn of trade surplus during the January-March period.
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