Wednesday July 1, 08:37 AM
REFILE-UPDATE 1-Indonesia June inflation slows, rate cut seen
JAKARTA, July 1 (Reuters) - Indonesia's inflation fell in June to its slowest pace in nine years, reflecting lower fuel prices and an easing in food price increases, giving the central bank room to cut its key rate again this week by 25 basis points to a record low of 6.75 percent.
Analysts expected that to be followed by another 25-basis-point cut before the end of the year, likely marking the end of Bank Indonesia's (BI) monetary easing cycle. The central bank has cut the rate by 2.5 percentage points since December 2008.
The country's consumer price index (CPI (NYSE: CPY - news) ) rose 3.65 percent in June from a year ago, data showed on Wednesday, below the 3.8 percent increase forecast by analysts in a Reuters poll, and below May's inflation rate of 6.04 percent.
'Year-on-year inflation will remain low throughout the year due to a high base effect,' said Eric Alexander Sugandi, an economist at Standard Chartered Bank, but added month-on-month inflation could pick up with the new school term in July, higher commodities prices, and the Ramadan fasting month in August.
For a graphic on inflation click on http://graphics.thomsonreuters.com/079/ID_CPI0709.jpg
The statistics bureau also reported that prices rose 0.11 percent in June from May, against a 0.04 percent rise in the previous month. The monthly figures are not seasonally adjusted.
Bank Indonesia has indicated it would cut its BI rate, now at 7 percent, further to spur growth which is forecast to slow to 3-4 percent this year, from 6.1 percent in 2008.
'I think Bank Indonesia will cut its rate by 25 basis points (this week) to signal that the trend for rates is still downward as it seeks to stimulate the economy,' said Andry Asmoro, economist at Bahana Securities.
'The market has priced in a 25 basis-points-cut at this moment. The rupiah rate should not be affected because the recent gain in the rupiah was due to offshore capital and it is still flowing in,' he added.
The rupiah was largely unchanged at 10,200 per dollar at 0710 GMT after the data announcement. The Indonesia Composite Index was largely unchanged by the data and was trading up 1.1 percent after the announcement.
The price of government's 10-year benchmark bonds was steady at 102 after the announcement.
The statistics bureau said exports in May dropped 28.27 percent to $9.26 billion from a year earlier, less than the 29.40 percent fall forecast by the market, after dropping 22.53 percent in April.
Indonesia's exports are equivalent to roughly one-third of its gross domestic product, making it less dependent on exports than other Asian economies.
Imports slumped 32.68 percent to $7.85 billion in May from a year ago, the statistics bureau said. Analysts had expected imports to drop 42.70 percent. Indonesia posted a 45.24 percent annual drop in April.
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(Reporting by Adriana Nina Kusuma, Dicky Kristanto, Sonya Angraini, Tyagita Silka and Andreas Ismar; Editing by Sara Webb)
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