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Bank Indonesia said demand for cash fell 14 percent during Ramadan and Idul Fitri, indicating that consumers had refrained from their usual full-tilt holiday spending sprees and that domestic demand, while still relatively strong, was starting to ease.
Only Rp 43 trillion ($4.5 billion) of the Rp 54.2 trillion in bank notes that the central bank had prepared for circulation were absorbed, the bank said.
“Last year [cash put into circulation] totaled Rp 50.3 trillion,” said Yopie D Alimuddin, the central bank’s deputy director for currency circulation.
Yopie said most of the bank notes flowing out of the banking system were small-denomination bills, but even demand for small notes was weaker than expected.
Only 70 percent of the small bills prepared for circulation during Ramadan and Idul Fitri were absorbed, he said.
Yopie said demand for bank notes was affected by economic growth, inflation, deposit interest rates and the value of the rupiah against the US dollar.
He said the appetite for cash usually increased if economic growth was strong, inflation was high, deposit rates were low and the rupiah was strong.
“Currently, inflation is quite low, interest rates have fallen and the currency is strong, so that should increase demand for cash,” he said.
Yopie added that noncash transactions also fell during the fasting month compared with last year, but he was unable to offer figures.
Eric Alexander Sugandi, an economist at Standard Chartered Bank, said domestic GDP growth would bottom out in the third quarter, but domestic consumption, while rising, would continue to slow in the months ahead compared with last year.
“Growth in domestic consumption in the third quarter this year is expected to be at 4 percent, lower than the 5.3 percent during the same period last year. Looking at declining optimism recorded in the August Consumer Confidence Index, we expect consumption to keep slowing for several months,” he said.
Bank Indonesia’s Consumer Confidence Index retreated 1.1 points to 114.3 points in August amid worries about short-term inflation, particularly for liquefied petroleum gas, electricity and road toll fees.
Although declining demand for cash is expected to have hit the retail sector, traditionally one of the most profitable sectors during Ramadan and Idul Fitri, some players remained confident about consumer demand.
Retailers expressed confidence in strong sales results despite the slowdown, saying consumers were still in relatively good shape.
“Despite demand for cash during Idul Fitri being weaker this year, we expect it would not bother our sales because people would still need primary goods whatever the conditions,” said PT Matahari Putra Prima spokesperson Roy Mandey.
Roy said sales from Ramadan and Idul Fitri contributed 10 percent to 15 percent of the company’s annual revenue.
“Although the crisis has hampered spending, we believe the retail business could maintain 15 to 20 percent growth, with store expansions,” he said.
Just 70 percent of the small bank notes prepared by the central bank for Ramadan and Idul Fitri actually went into circulation. (Photo: JG)
Bank Indonesia said demand for cash fell 14 percent during Ramadan and Idul Fitri, indicating that consumers had refrained from their usual full-tilt holiday spending sprees and that domestic demand, while still relatively strong, was starting to ease.
Only Rp 43 trillion ($4.5 billion) of the Rp 54.2 trillion in bank notes that the central bank had prepared for circulation were absorbed, the bank said.
“Last year [cash put into circulation] totaled Rp 50.3 trillion,” said Yopie D Alimuddin, the central bank’s deputy director for currency circulation.
Yopie said most of the bank notes flowing out of the banking system were small-denomination bills, but even demand for small notes was weaker than expected.
Only 70 percent of the small bills prepared for circulation during Ramadan and Idul Fitri were absorbed, he said.
Yopie said demand for bank notes was affected by economic growth, inflation, deposit interest rates and the value of the rupiah against the US dollar.
He said the appetite for cash usually increased if economic growth was strong, inflation was high, deposit rates were low and the rupiah was strong.
“Currently, inflation is quite low, interest rates have fallen and the currency is strong, so that should increase demand for cash,” he said.
Yopie added that noncash transactions also fell during the fasting month compared with last year, but he was unable to offer figures.
Eric Alexander Sugandi, an economist at Standard Chartered Bank, said domestic GDP growth would bottom out in the third quarter, but domestic consumption, while rising, would continue to slow in the months ahead compared with last year.
“Growth in domestic consumption in the third quarter this year is expected to be at 4 percent, lower than the 5.3 percent during the same period last year. Looking at declining optimism recorded in the August Consumer Confidence Index, we expect consumption to keep slowing for several months,” he said.
Bank Indonesia’s Consumer Confidence Index retreated 1.1 points to 114.3 points in August amid worries about short-term inflation, particularly for liquefied petroleum gas, electricity and road toll fees.
Although declining demand for cash is expected to have hit the retail sector, traditionally one of the most profitable sectors during Ramadan and Idul Fitri, some players remained confident about consumer demand.
Retailers expressed confidence in strong sales results despite the slowdown, saying consumers were still in relatively good shape.
“Despite demand for cash during Idul Fitri being weaker this year, we expect it would not bother our sales because people would still need primary goods whatever the conditions,” said PT Matahari Putra Prima spokesperson Roy Mandey.
Roy said sales from Ramadan and Idul Fitri contributed 10 percent to 15 percent of the company’s annual revenue.
“Although the crisis has hampered spending, we believe the retail business could maintain 15 to 20 percent growth, with store expansions,” he said.
