Indonesia cuts fuel price again to curb inflation
INDONESIA’S president cut fuel prices for the third time in six weeks in a bid to reduce inflation and combat the impact of the global crisis ahead of elections this year in Southeast Asia’s biggest economy.
“With this decision we expect to see a direct or indirect impact on prices of goods,” President Susilo Bambang Yudhoyono told a press conference.
Finance Minister Sri Mulyani Indrawati said the cut in fuel prices would feed into lower transportation costs, and ease inflationary pressures in January and February.
“The trend of declining prices is expected to help ease inflation to single digits, approaching 6 percent in the near future,” Indrawati said.
Annual inflation was 11.06 percent in December. The government had forecast annual inflation in the range of 6-7 percent for 2009.
The reduction in fuel prices follows several other measures, including interest rate cuts and a fiscal stimulus package, aimed at spurring growth which the government earlier this month said could slow to around 5 percent in 2009 from an estimated 6.2 percent in 2008.
The 10 percent and 6.3 percent reductions in gasoline and diesel fuel announced on Monday will take effect on Jan. 15 and should help ease inflationary pressures, paving the way for the central bank to cut its key interest rate BIPG again.
Bank Indonesia has cut twice, by a total of 75 basis points, since early December, bringing the key rate down to 8.75 percent.
The government announced a 72 trillion rupiah ($6.5 billion) fiscal stimulus in early January, with plans to spend heavily on the country’s creaking infrastructure in order to create jobs and drive economic growth.
Indonesia already has some of the lowest fuel prices in Asia, thanks to state subsidies. Since Dec. 1, the government has cut gasoline prices by 25 percent in total and diesel by 18 percent.
“It may help restore purchasing power. But due to psychological factors, people may not spend their money and may save it instead,” said David Sumual, an economist at Bank BCA.
“To create demand, the focus of the government should be on the fiscal stimulus, including spending and tax cuts, not price cut”. ($1=11,075 Rupiah) (Reuters)