BI Might Cut Interest Rate, BPS Says

TEMPO.CO, Jakarta - The Central Statistics Agency (BPS) announced that inflation in July 2015 reached 0.93 percent with core inflation of 0.34 percent. This figure is relatively low considering the period saw plenty of price hike triggers. In the first half of 2015, inflation reached 1.9 percent while annual inflation stood at 7.26 percent.

BPS's deputy for statistics, distribution, and services Sasmito Hadi Wibowo said a lower inflation creates an opportunity for Bank Indonesia to cut its benchmark interest rate.

"[The low inflation] shows that the economic components that determine inflation in general are doing well," BPS chief Suryamin said.

In addition to core inflation considerations, Sasmito said a BI Rate cut is possible assuming that July's inflation is this year's highest. If there is no significant hike in commodity prices in international markets, inflation is stay low until the end of the year.

However, University of Indonesia economist Lana Soelistianingsih is pessimistic that BI would cut interest rates only based on core inflation. She believes the central bank will also observe exchange rate movements that have continued to weaken in recent months.

"If the BI Rate is cut, the rupiah could depreciate to Rp14,000 per US dollar," she told Tempo.

Lana said inflation was low more because of declining production activities—affected by a weak exchange rate that triggered production costs to rise and purchasing power to drop.

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