Surging interest rates, the highest inflation in years and a plunging rupiah have done little to dent the appetite of Indonesia's growing middle class to shop, adding pressure on the central bank to keep policy tight over the next few months.
The majority of economists polled by Reuters expect Bank Indonesia to keep rates on hold at its meeting today but doubt it has much choice but to increase them over the next three months simply to keep investors onside once the US Fed does start to pull back on years of cheap money.
Figures this week showed that November purchases of middle class must-haves - cars and motorbikes - both rose, while overall retail sales in October shot up more than 12% from a year earlier.
"The effectiveness of interest rates should be reviewed. Bank Indonesia needs to look at other non-economic factors such as consumption and investment patterns," said Eric Alexander Sugandi, economist at Standard Chartered in Jakarta.
He said any change in consumption patterns will take time.
"Interest rate hikes are more to lure foreign money. So, the immediate impact will be on the financial account, rather than current account," Sugandi said.
Bank Indonesia has pushed up its main interest rates by 175 basis points since June. Inflation, at a 4-1/2-year high, is expected to finish the year at close to 9%.
So concerned is the government about its current account deficit, running at 3.8% of GDP in the third quarter, that earlier this week it announced planned tax hikes to dampen luxury imports, which continue to rise despite a 20% slump in the value of the rupiah this year.
A sign of the resilience of consumption came in October retail sales which went up 12.8% from a year earlier, and a central bank survey predicted household spending would stay strong in November.
Growth in motorbike sales, which have become a major indictor of the spending habits of Indonesia's emerging middle class, did slow in November, but was still 10.6% up from a year earlier, while auto sales grew 7.75%, above the industry target.
Those increases came in the wake of the central bank's hawkish rates policy, efforts to curb credit and the government's June move to hike fuel prices by an average 33%.
Bank Indonesia has raised concerns over persistently strong loan growth, trimming its target for growth next year - a broad hint to banks to be more conservative with their lending.
In September, annual loan growth accelerated to 23.1%.
Even higher downpayment rules for auto purchases and housing loans have had limited impact.
"The outlook for Indonesia's consumer sector remains positive and less negatively affected by monetary crisis than other sectors," Mandiri Sekuritas wrote in a research note.
It pointed to strong population growth, significant growth in the emerging middle class segment and overall higher per capita income. - Reuters, December 12, 2013.