Rupiah still has room to strengthen after subsidized-fuel hike | Sector data
(Insider Stories) - Bank Indonesia (BI) tips room for more gains in the rupiah as the increase in subsidized fuel prices has reduced the need for energy imports, which should narrow a gap in the balance of payments as well as constraining state budget deficit levels.
The inflationary impact of the fuel price increase will not be excessive, due partly to a low base, BI assistant governor Hendar says - the government is predicting a rise in inflation of just over 100bps to slightly above 7%, compared with double-digit rates of consumer-price increases following fuel price hikes in recent years.
Hendar says in reports that the government and financial authorities should prepare effective policy responses to manage public expectations about the increase in transportation fares, while BI needs to be on its guard against the second-round inflationary effects. In previous years where fuel prices have risen, after three months the inflationary picture has improved.
Central Statistics Agency (BPS) data show on-month inflation was slightly above trend in June at 1.03%, compared with 0.62% in June 2012, 0.55% in June 2011, 0.97% in June 2010 and 0.11% in June 2009.
Core inflation, which strips out volatile and government-controlled prices, was 0.32% on month.
