In the chaos of Thursday’s market volatility and mounting concern over the EU’s financial situation, Indonesia gave investors a rare chance to cheer about something good, even as Indonesia’s ETF (IDX) was sold off with the broader market.
According to Aloysius Unditu and Novrida Manurung of Bloomberg, Indonesia’s central bank was able to leave its benchmark interest rate at a record low for the ninth straight month because a stronger currency kept inflation under 4%.
Although Indonesia is not the only Asian country doling out good economic news, it’s a standout because other nations from India to China are raising rates or increasing reserves as a remedy for inflation.
If inflation remains within the expected range of 4% to 6%, the central bank will likely keep interest rates low through the end of the year, said Senior Deputy Governor Darmin Nasution.
A low interest rate environment will continue to boost consumer spending, exports and business investment in Indonesia. Aloysius Unditu and Michael Munoz of Bloomberg report that car sales rose 74% in the first quarter compared to a year ago while cement consumption rose 14%. Exports surged to $35.4 billion from $23.03 billion, and investment totaled $4.6 billion with roughly 84% of that coming from foreign investors.
Indonesia is also experiencing the most stable political climate since the ousting of dictator Suharto in 1998. In addition, President Yudhoyono is committed to delivering an average annual growth of 6.6% over the remainder of his term ending in 2014. That means double the spending on roads, seaports and airports to the tune of $140 billion over the next five years.
- Market Vectors Indonesia Index ETF (IDX)
Sumin Kim contributed to this article.