Bank Indonesia has room to lower rates if inflation “behaves,”

Bank Indonesia has room to lower rates if inflation “behaves,” Deputy Governor Hartadi Sarwono said in September. Officials can move toward monetary policy “loosening” if price gains slow and growth disappoints, Warjiyo said last month.
Gross domestic product rose 6.49 percent in the second quarter from a year earlier, after increasing 6.47 percent in the three months through March. HSBC Holdings Plc this week cut its estimate for 2011 expansion to 6.4 percent from 6.5 percent.



Bank Indonesia still needs to ensure inflation expectations remain under control as road tolls are increasing and electricity tariffs may rise, said Wisnu Wardana, an economist at PT BNI Securities in Jakarta.

A weaker currency may also fan import prices, impeding the moderation in inflation in the world’s fourth-most populous nation. Before today’s cut, the central bank refrained from boosting its key rate after raising it by a quarter of a percentage point in February.

Lower borrowing costs may boost the property industry. PT Semen Gresik, the nation’s biggest producer of cement, is predicting domestic demand for the building material will likely rise 12 percent this year.

Indonesia is one step away from its first investment-grade credit rating in more than a decade, as President Susilo Bambang Yudhoyono targets growth of as much as 6.6 percent on average through the remainder of his term ending in 2014.

He plans to double spending on roads, ports and airports to $140 billion by then. Toyota Motor Co. and Unilever NV are among companies investing in the $707 billion economy.