JAKARTA, July 11: Indonesia’s broad money supply (M2) in May increased at the fastest annual pace in 13 years due to strong growth in bank loans, and analysts said it signalled an increase in inflationary pressure for the next three to six months.
The M2 money supply, an indicator of economic growth and inflation in Southeast Asia’s biggest economy, rose 20.9 percent in May from a year ago to reach 2,992.06 trillion rupiah ($317.97 billion), data from Bank Indonesia (BI) showed on Wednesday.
The 20.9 percent growth is higher than the 20.2 percent booked a month earlier. The last time M2 money supply increased at a faster pace year-on-year was May 1999, when it grew by 27.2 percent.
‘I am not be surprised because loan growth in Indonesia is strong and BI’s intervention would also mean further injection of money into the market,’ said Gundy Cahyadi, economist at OCBC in Singapore.
Loan growth in April was 25.7 percent year-on-year, mainly driven by investment loans, according to Bank Indonesia.
The strong growth trend in money supply may show that inflationary pressures will continue to increase in the next few months, as consumers spend more during the fasting month that will begin next week and the Eid al-Fitr festival, said Leo Rinaldy, Jakarta-based economist at Mandiri Sekuritas.
‘Demand-pull inflation will increase … What also needs to be watched is that core inflation is also rising,’ said Rinaldy.
Indonesia’s inflation in June quickened unexpectedly to 4.53 percent from a year earlier as shops began increasing prices ahead of the fasting month, but core inflation was steady at 4.15 percent.
(AGENCIES)
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