The Jakarta Post BI holds rate at lowest level

Esther Samboh, The Jakarta Post, Jakarta | Fri, 03/09/2012 11:03 AM Bank Indonesia (BI) is keeping the benchmark interest rate at its lowest-ever level, but the governments plan to raise fuel and electricity prices may cause inflation to break the central banks target. Following a meeting on Thursday, which decided the BI rate should remain at 5.75 percent, a statement by BIs board of governors hinted they were more wary of a potential spike in the previously benign consumer price index (CPI). Inflation in 2012 could tend to surpass its target because of the temporary impact of the governments fuel subsidy policy, the boards statement read. However, the central bank believed that the inflationary pressures would be temporary or a one-time shock. The BI rate is used by banks nationwide as a reference to setting their lending and deposit rates and is used to control the money in circulation to help meet policy makers inflation and economic-growth targets. BI targeted a 3.5- to 5.5-percent CPI increase this year and, as of February, inflation continued to ease, to a 23-month low of 3.65 percent. Against that backdrop, the central bank has cut the rate three times, by a total of 75 basis points during the past five months, to spur growth over fear that Indonesia would be affected by the slowing global economy. But the governments plans to either raise subsidized fuel prices by Rp 1,500 per liter from the current Rp 4,500 or to cap subsidies by a fixed rate of Rp 2,000 per liter, and to increase base electricity rates by 10 percent, will stoke inflation in the coming months, analysts have said. Under these circumstances, we think that BIs decision is proper to change gear and shift to a possible tightening of the monetary policy in the near future, Bank Danamon economists Anton Gunawan and Dian Ayu Yustina said in a research note distributed after BIs policy meeting. Both they and other economists have started to expect the central bank will hike policy rates by at least 25 basis points later this year to give a signal to the market and limit the impact of the subsidy-reform program on inflation. In the second half of the year, theres a possibility that the BI rate will be hiked because inflation will most likely increase significantly as a consequence of a combined increase in fuel and electricity prices, Bank Negara Indonesia (BNI) chief economist, Ryan Kiryanto, said.

The adjustments in energy prices would also create downside risks for Indonesias estimated 6.3to 6.7-percent economic growth this year, coupled with uncertainties in the global economy, BIs board of governors said in its policy statement. In the future, the board of governors will remain vigilant regarding the impact of the governments energy policies and the impact of the global economic slowdown on Indonesias economy. Bank Indonesia will optimize various policies to minimize the temporary impact on inflation, the statement maintained. That included guarding the rupiah against potential sell-offs due to investors fear of surging inflationary pressures, the central bank said. The rupiah lost 0.33 percent through February to end the month at Rp 9,020 per US dollar. Indonesias foreign exchange reserves at the central bank, however, increased slightly to US$112.22 billion in February from $111.99 billion in January, BI data showed. Sumber: http://www.thejakartapost.com/news/2012/03/09/bi-holds-rate-lowest-level.html Translate: ** But the governments plans to either raise subsidized fuel prices by Rp 1,500 per liter from the current Rp 4,500 or to cap subsidies by a fixed rate of Rp 2,000 per liter, and to increase base electricity rates by 10 percent, will stoke inflation in the coming months, analysts have said => Tapi rencana pemerintah baik menaikkan harga BBM bersubsidi sebesar Rp 1.500 per liter - dari Rp saat ini 4.500 atau untuk menutupi subsidi dengan tingkat bunga tetap sebesar Rp 2.000 per liter, dan untuk meningkatkan tingkat dasar listrik sebesar 10 persen, akan menyalakan inflasi dalam beberapa bulan mendatang, para analis mengatakan ** Both they and other economists have started to expect the central bank will hike policy rates by at least 25 basis points later this year to give a signal to the market and limit the impact of the subsidy-reform program on inflation. => Baik mereka dan ekonom lainnya telah mulai memperkirakan bank sentral akan menaikkan suku kebijakan oleh setidaknya 25 basis poin akhir tahun ini untuk memberikan sinyal ke pasar dan membatasi dampak dari program subsidireformasi pada inflasi.

The Jakarta Post