Business sentiment up in Indonesia on lower rates hope

The Business Sentiment Index (BSI) in Indonesia edged higher by 0.4 percent in the April-May period to 114.5 as hopes of lower interest rates increased, a newspaper reported Saturday.

Both components of the BSI saw gains: the Present Situations Index (PSI), which measures sentiment as regards current conditions, increased 0.2 percent to 107.8, while the Expectations Index (EI) climbed 0.6 percent to 121.3, reported The Jakarta Post, quoting a survey conducted by the Dana Research Institute (DRI).

According to the survey, only 24.8 percent of CEOs now expect lending rates to increase compared to 26.7 percent in the previous survey.

It is hoped that a series of interest rate cuts in the second half of the year will provide a much-needed fillip to the Indonesian economy, which has slowed down significantly in the wake of last October's fuel price hikes.

In addition to the hopes of lower rates, another key finding of the survey was that cost pressures, while still high, at last appear to be moderating.

This is significant as high cost pressures have been weighing on much of corporate Indonesia for some time now, especially given that fuel prices rose last year by 20 percent on average in March, and then again by 126 percent on average in October.

CEOs also believe that inflationary pressures are continuing to ease. Sentiment about inflation fell by 2.0 percent to 126.5, or way down from its peak of 134.6 immediately after fuel prices went up in October last year.

Meanwhile, business confidence in the government was unchanged in the latest survey at 95.5. Encouragingly, though, with higher expectations of interest rate cuts, CEOs remain sanguine about the government's ability to improve market conditions.

This component of the business confidence in the government index increased 0.2 percent to 109.6.

Source: Xinhua