Inflation scare growing in Indonesia

2010 brought many happy returns to the Indonesian stock market with gains of 46%. So, Monday’s 4.2% drop capping a 3-day drop of 8.1% is still technically a very minor correction. (The stock market has also essentially stalled out for the past 3 months).

More importantly, observers are citing growing inflation fears for the drop in the Indonesian stock market. The Indonesian Central Bank decided to hold interest rates steady for now, but economists and analysts seem to expect a rate hike program to finally begin after rates stayed at record lows for 17 months. As always, the trick is whether monetary authorities can act swiftly enough to stem the looming tide of inflation in the country. The monetary mentality has to rapidly switch from recovery to constraint.

For more details on this story see “Indonesia Stocks Tumble Most in Two Years on Inflation Concern” in Bloomberg.