Floods may increase prices, dampen hopes of rate cut

Urip Hudiono, The Jakarta Post, Jakarta

The recent flooding in the capital and surrounding areas is taking a toll on the economy, arousing negative sentiment on the country's financial markets and likely to cause a spike in this month's inflation.

Many business sectors, the banking sector in particular, have been badly affected, with the floodwaters knocking out communications and transportation lines, and forcing power shutdowns in many parts of Greater Jakarta.

The Jakarta Stock Exchange Composite Index closed down 11.842 points -- or 0.67 percent -- at 1,768.539 Monday, extending its midday fall of 0.36 percent.

The rupiah, however, managed to weather the negative sentiment, closing stronger at Rp 9,068 against the U.S. dollar from last Friday's Rp 9,073.

Investors are concerned about the flooding as it could push up prices and foil an expected quarter percentage point rate cut from the central bank Tuesday.

The damage from the three-day-long inundation could hit stocks in the consumer, property and banking sectors, and clearly reflects the woefully inadequate infrastructure that has long being helping deter investment.

Economist Ryan Kiryanto of Bank Negara Indonesia said the flooding could disrupt the distribution chain, leading to price rises and monthly inflation for February of between at least 0.6 and 1 percent.

"People rushing out to buy and stock up foodstuffs could further push up prices," he said.

Inflation eased to a monthly rate of 1.04 percent -- 6.26 percent on-year -- in January, compared with 1.2 percent and 6.6 percent in December, with most of the increase being due to higher food prices, particularly of rice.

Coordinating Minister for the Economy Boediono said that the government would put as much rice as was needed on the market following the flooding, while Trade Minister Mari Elka Pangestu said she would work closely with distributors to ensure that supplies reached the affected areas so as to keep inflation in check.

There are no official figures as yet of the financial losses caused by the floods, but state power firm PT PLN said it could lose up to Rp 51 billion (US$5.6 million) after more than 1,000 of its substations were knocked out by the floodwaters.

For its part, state-owned phone company PT Telkom said it could suffer up to Rp 1.5 billion in losses after 70,000 telephone lines and 20,000 Internet connections were put out of action by the floods.

Meanwhile, the country's major banks are still struggling to keep branch-office and ATM services running.

Bank Central Asia public relations manager Dwi Narini said the country's third largest lender by assets had to shut 50 of its 362 branches after the water start rising on Feb. 2.

BNI corporate secretary Intan Abdams said 46 of the bank's 219 branches and 11 of its 673 ATM booths had to be closed due to the flooding.

"A total of 30 branches have had to close temporarily due to the offices themselves or the areas surrounding them being flooded, while 16 of them had to close due to power and telecommunications problems," she said.

Bank Indonesia spokesperson Budi Mulya said the central bank had drafted a disaster-recovery plan to ensure the payments system continued operating.

Separately, JSX trading director HM Sembiring said the bourse had not halted operations, and had provided alternative communications lines for those that had been disrupted. (05)
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