Kresna Securities

INDONESIA'S economy is set for a bumpy ride in the next six months as rising interest rates and inflation cut into consumer spending and force companies to cut back on borrowing. But according to bankers and market analysts, the economy should get back on a strong growth footing by the middle of next year.

Inflation surged to a six-year high of 17.9 per cent in October after the government almost tripled kerosene prices and doubled diesel tariffs to meet budget targets and stem a decline in the rupiah. The currency has fallen 8.17 per cent this year, making it the second-worst performer among 15 Asia-Pacific currencies tracked by Bloomberg. But the rupiah enjoyed its biggest gain in two weeks yesterday on speculation the central bank will continue to lift its benchmark interest rate, leading to optimism that higher rates will lure foreign investors.

Bank Indonesia responded to the higher inflationary environment last week by raising its benchmark rate a record 125 basis points to 12.25 per cent. It was the fifth increase in the rate since July. Indonesia's financial markets were closed from Nov 2 to 8 because of the Idul Fitri holiday.

'The central bank has done the right thing in raising interest rates sharply,' said Henry Ho, president-director of Bank Internasional Indonesia (BII). 'I think a further rise of between 50 basis points and 75 basis points will still be okay.'

Mr Ho predicts that demand will start picking up again in the second quarter of 2006, once macro-economic conditions normalise.

'By the first quarter of next year the dust will have settled down and the economy will resume its strong growth path,' he said. 'I don't expect the high interest rate environment to have a long-term impact.'

BII is, however, reassessing its growth projections for the next six months in view of the expected economic slowdown and will make tactical changes in terms of focusing on new areas of growth, Mr Ho said. Consumer and small business loans growth has so far remained strong, but is expected to slow once higher borrowing costs bite. 'In major cities, loan demand is still okay but we expect to see a slowdown until the early part of next year,' Mr Ho said.

Observers expect the biggest impact of higher interest rates will be on car and motorcycle sales, which have grown phenomenally over the past three years.
Sales of cars and motorcycles could slide by as much as 10 per cent next year, said Prijono Sugiarto, vice-chairman of the Association of Indonesian Automotive Industries and a director of Astra International, the country's biggest auto distributor.

In fact, an expected sharp fall in corporate earnings in the fourth quarter prompted investors to sell bank, retail and property counters yesterday, causing the Jakarta Composite Index to fall almost 1.5 per cent. 'Interest rate-sensitive stocks have suffered as equity investors are growing edgy with the rising interest rate environment,' said David Chang, director of sales at Kresna Securities. 'Right now, investors are concerned about fourth-quarter corporate earnings, which may not be that great.'

Next six months will be rough for Indon economy: analysts

By SHOEB KAGDA
IN JAKARTA

Market Info

Reksa Dana
	06/09/10	05/09/10
Pasar Uang
MRS CASH KRESNA	1,000.0000	1,000.0000
Pendapatan Tetap
MRS BOND KRESNA	1,209.6147	-
Campuran
IPB Syariah	2,027.4403	2,009.9098
IPB-Kresna	2,586.3854	2,580.3578
MRS FLEX KRESNA	1,426.2590	-
Indeks
Kresna Indeks 45	2,654.3303	-

Kresna Indeks 45