Indonesia still isn’t spending after 8 rate cuts

by BLOOMBERG

JAKARTAIndonesia’s consumers may be more confident than ever, but they still aren’t spending much.

While Bank Indonesia’s consumer confidence index hit a record high in December, retail sales grew just 2.6% compared to a year earlier.

Lacklustre sales threatens to hamper recovery in South-East Asia’s biggest economy, with spending by consumers and firms making up half of gross domestic product. That’s presenting a dilemma for policymakers after an aggressive run of monetary easing that’s seen eight interest rate cuts.

The weakness is being caused by a decline in real wages among some workers, according to Andry Asmoro, an economist at PT Bank Mandiri in Jakarta.

Higher electricity prices early last year had curbed the purchasing power of low-tomiddle income earners, he said. There was also a delay in government assistance to lower-paid workers.

Bank Indonesia, which left its benchmark rate unchanged in December after 200 basis points of cuts since the start of 2016, has described its current policy setting as “sufficient”.

But governor Agus Martowardojo and his board now also face the impact of rising interest rates in the US and elsewhere, as they try to boost growth in the Indonesian economy.

The central bank board will hold its first policy meeting for the year next week, with a decision to be announced on Thursday. — Bloomberg