BI defends inflation target amid doubt<\/p>\n
Dadan Wijaksana, The Jakarta Post\/Jakarta<\/p>\n
The central bank expressed optimism on Friday that the newly
\nunveiled long-term inflation target of 3 percent was \"within
\nreach\" amid the nation's relatively improved macroeconomic
\ncondition.<\/p>\n
Aslim Tadjudin, Bank Indonesia deputy governor, stated that
\neven though the target was for a ten-year period, the inflation
\nrate could likely be reduced to 3 percent in the next five to
\nseven years.<\/p>\n
\"I am optimistic as our macroeconomic indicators are stable.
\nWith discipline in implementing monetary policy, the target is
\nwithin reach,\" he said.<\/p>\n
He was quick to add, however, that it would take place at a
\ngradual pace, so as not to create shocks to the market and harm
\nthe economy. He did not go into detail on the specific steps to
\nbe taken to meet that target.<\/p>\n
For this year, the inflation rate was assumed to average 6.5
\npercent and the 2005 assumption is 5.5 percent.<\/p>\n
The Ministry of Finance and Bank Indonesia announced on
\nThursday that they had decided on the long-term inflation goal of
\n3 percent in hopes of making the country's economy more
\ncompetitive.<\/p>\n
The government has said that the setting up of a target for
\nsuch a long period is not only aimed at promoting transparency on
\nthe part of the monetary authority in its policy directions, but
\nmore importantly was aimed at providing confidence for the market
\nand business community.<\/p>\n
The target should be a guideline to determine how the economy
\nis doing, and thus make it easier for industry players to adjust
\nand draw up their own long-term business plans.<\/p>\n
However, the Institute for Development of Economics and
\nFinance (Indef), a private think tank, acknowledged the
\nimportance of the inflation goal, but doubted that a target of 3
\npercent could be reached.<\/p>\n
\"It means, in the next ten years, inflation has to be reduced
\nby 0.4 percentage points each year, something questionable if the
\ngovernment's track record -- which could only manage to contain
\ninflation at around 7 percent -- is taken into account,\" Indef
\ndirector Iman Sugema told the press on Friday.<\/p>\n
In July, year-on-year inflation increased to 7.20 percent
\nmainly due to the weaker rupiah.<\/p>\n
Iman added that with the lingering inflationary pressure at
\nthe moment, there was some doubt whether the government's year-
\nend inflation target of 6.5 percent could be achieved.<\/p>\n
\"It's hard to keep inflation in check if the rupiah remains
\nhighly volatile,\" Iman said, referring to the local unit's weak
\nperformance against the U.S. dollar.<\/p>\n
The rupiah has weakened by around 8 percent since the start of
\nthe year.<\/p>\n
According to Aslim, however, the fundamentals of the local
\ncurrency remain strong and that its recent volatility has been
\ncaused by non-fundamental factors, including market concerns
\nstemming from the general election process.<\/p>\n
The impact however, was considered minor, he added.<\/p>\n
\"The rupiah is currently hovering around 9,200 against the
\nU.S. dollar. So far so good, although there is a little
\nuncertainty leading up to the second round of the presidential
\nelection (on Sept. 20),\" Aslim added.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-defends-inflation-target-amid-doubt-1447893297",
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