BI may cut benchmark rate again

JAKARTA. Data from National Statistic Agency (BPS) show that Consumer Price Index (IHK) inflation in September 2016 stood at the rate of 0.22%. In the calendar year of 2016, inflation stood at 1.97%, while inflation on year on year basis in September 2016 stood at the rate of 3.07%.

Head of BPS Suhariyanto claimed that inflation rate in September 2016 was still under control. “Based on the inflation rate on calendar year basis, inflation in the next three months is expected to be under control”, said Suhariyanto.

The 2016 Revised State Budget set a 4% of annual inflation rate. According to BPS record, the increase in cellular phone pulse price, house renting cost, tuition fees, cigarette price, electricity tariff, and chili price contributed to inflation in September 2016. Meanwhile, deflation in food price stood at the rate of 0.07%. Suhariyanto added filter cigarette and white cigarette prices rises contributed to 0.02% and 0.01% of total inflation rate, respectively.

The government’s plan to increase tobacco excise tariff in average rate of 10.54% in January 2017 may drive a 12.26% of increase in cigarette retail price.

Deputy of Service and Distribution Statistics Department at BPS Sasmito Hadi Wibowo said that the merchant usually will increase the cigarette price in months after government announces the increase in cigarette excise rate.

According to government estimation, the cigarette excise rise may lead to 0.23% of inflation.

Sasmito said that the BPS did not see a strong sentiment that may drive to a high inflation rate in October. BPS predicted the inflation rate in October 2016 will stand at under the rate of 0.5%. Furthermore, the government plan to raise cigarette excise is unlikely to affect to inflation in October.

However, the increase in rice price is likely to have impact on inflation in this month. Data from BPS show that the prices of dry grain harvest at the level of farmer and huller in September 2016 have increased by 1.29% and 1.26% compared to August 2016.

Sasmito estimated that national inflation rate at the end of 2016 will stand at lower limit of 4% of target inflation plus/minus 1%.

Coordinating Minister for Economic Affairs Darmin Nasution mentioned that inflation rate in September 2016 was still in line with government’s expectation. Therefore, BI (the Central Bank) still has opportunity to cut its benchmark interest rate. Previously, BI has decreased its 7 days reserve repo rate by 0.25% to 5%.

Recently, tax amnesty revenues have boosted capital market performance. This subsequently may lead to a decrease in bank’s interest rate.

(MUHAMMAD FARID/Translator)