Benget Besalicto Tnb., Jakarta – Inflation continued to ease in April, giving the central bank lee-way to further cut its key interest rate to spur economic growth, which slowed after a sharp drop in exports as a result of the global financial crisis.
One-year inflation stood at 7.3 percent last month from a year earlier, easing from 7.9 percent in March, Central Statistics Agency (BPS) chairman Rusman Heriawan said Friday.
Benign inflation has prompted the central bank to reduce the interest rate since December, stoking consumer demand in the consumption-driven economy.
A lower BI rate should see banks follow suit by cutting lending rates, spurring loan demand from businesses and individuals alike and, in turn, stimulating the economy.
The central bank will next week meet to decide its rate policy. Its benchmark interest rate currently stands at 7.5 percent.
Indonesia's economy is indeed in need of a stimulus, with investment and exports both hit hard by the global economic downturn, leaving consumption again as its main driver.
Also on Friday, Rusman announced first quarter exports dropped by 32.13 percent to US$22.90 billion as compared to the same period last year. Nonoil and gas exports during the period also plunged by 25.69 percent, to US$19.58 billion from a year earlier.
The global economic crisis dampened global export demand, which eventually pushed down the prices of the world's key commodities, further eroding export revenues for commodity-heavy countries like Indonesia.
Indonesia's exports have been on a decline since October last year, just as the world's liquidity crisis started to escalate. Indonesia's economy, in general, has felt the pinch ever since.
In the first quarter, the economy is estimated to have grown by 4.6 percent, slower than 6.1 percent recorded last year.
As the impacts of the global crisis worsen, the central bank has revised downward its 2009 full-year economic growth forecast to between 3 percent and 4 percent, as exports, export revenue and inward investment continue to plunge.
Initially it forecast a growth of 4 to 5 percent. It also has forecast that full-year exports may contract by as much as 28 percent.
Analysts have said that, in addition to support from the monetary side, by having a low central bank interest rate, the economy will need support on the fiscal front in the form of massive government spending, including the planned stimulus package.
The government's economic stimulus package, which includes infrastructure development, has yet to be fully implemented so far, although it is expected to help cushion the impact of the crisis later on the year.
The government has allocated Rp 73.3 trillion ($6.4 billion) in its stimulus package.