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Indonesia inflation slows to weakest in 7 years, misses target

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Indonesia's inflation slowed to the weakest in almost seven years and fell below the central bank's target, bolstering the case for further interest-rate cuts.

[JAKARTA] Indonesia's inflation slowed to the weakest in almost seven years and fell below the central bank's target, bolstering the case for further interest-rate cuts.

Consumer price gains eased to 2.79 per cent last month from a year earlier, compared with economists' 3.02 per cent estimate. Prices fell 0.02 per cent in August from the previous month, the statistics office said at a press conference in Jakarta on Thursday, adding that the annual rate was the lowest since Dec 2009.

Bank Indonesia still sees room to ease policy considering the economy has a manageable inflation rate and current-account deficit, Senior Deputy Governor Mirza Adityaswara said last week.

The authority set its 2016 inflation target at 3 per cent to 5 per cent and expects consumer-price gains to end the year at around 3.5 per cent, he said.

"Easing inflation, along with stability in both the current account deficit and exchange rate, have created policy space for rate cuts," said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd in Singapore.

"The degree of easing will be dependent on the size of tax amnesty inflows." ANZ expects the central bank to lower its new benchmark rate by another 25 basis points to 5 per cent as soon as its September meeting, Mr Ng said.

BLOOMBERG