Central bank forecasts 1999 inflation at 2%<\/p>\n
JAKARTA (JP): Bank Indonesia is forecasting 2 percent
\ninflation throughout 1999 if the domestic political situation
\nimproves following the Oct. 20 presidential election.<\/p>\n
\"The board of governors believes pressure on prices will
\nremain low and inflation could be checked at 2 percent in 1999,\"
\nthe central bank said in a statement on Wednesday.<\/p>\n
Bank Indonesia earlier forecast inflation for the year would
\nbe around 5 percent.<\/p>\n
Bank Indonesia said prices currently were stable and under
\ncontrol, as reflected by the 0.68 percent deflation in September,
\nthe seventh consecutive month of deflation.<\/p>\n
The central bureau of statistics said recently September's
\n0.68 percent deflation sent the annualized inflation level down
\nto 1.25 percent.<\/p>\n
Indonesia suffered hyperinflation of more than 77 percent last
\nyear as the economic crisis deepened.<\/p>\n
Bank Indonesia said the deflation over the past seven months
\nwas the result of supply outweighing demand.<\/p>\n
The central bank said increased production was seen in the
\nagriculture and mining sectors and the processing industry, while
\ndemand remained low because of weak household purchasing power
\nand the ailing banking sector was still not providing significant
\nfinancing for new investments.<\/p>\n
Bank Indonesia said the consolidation process in the banking
\nsector and the slow restructuring of the real sector were the
\nprimary reasons behind the low level of investment by the private
\nsector.<\/p>\n
The bank also pointed to its tight monetary policy during the
\nsecond and third quarters of 1998 as a factor behind the still
\nlagging pace of private investment.<\/p>\n
Bank Indonesia also said that if the postelection political
\nsituation improved, 1999 economic growth could reach zero
\npercent, compared to last year's 13.68 percent contraction.<\/p>\n
\"But if the domestic social and political situation is not as
\nconducive as expected, the board of governors projects the
\neconomy will contract by 1 percent, accompanied by inflation of
\nbetween 2 percent and 4 percent,\" the statement said.<\/p>\n
The country has been plagued recently by bloody riots and
\nstudent demonstrations, as well as a banking scandal which
\nallegedly involves people close to the President.<\/p>\n
The rupiah took a recent hit from the unrest and the banking
\nscandal.<\/p>\n
However, Bank Indonesia said the weakening of the rupiah was
\ntemporary because it was not followed by an increase in the
\n\"premium swap\".<\/p>\n
\"This indicates that sentiment on the rupiah is still strong,\"
\nthe bank said.<\/p>\n
The rupiah ended higher at 7,745 against the U.S. dollar on
\nWednesday, from 7,780 the previous day. The currency was above
\nthe 8,000 level last week, a dramatic fall from its 6,500 level
\nbefore the Bank Bali scandal was exposed and the problems in East
\nTimor erupted.<\/p>\n
The central bank said the relatively low inflation and a
\nstable rupiah would bring the benchmark interest rate on its one-
\nmonth SBI promissory note to 10 percent by the end of 1999.<\/p>\n
Bank Indonesia, however, warned that if the domestic political
\nsituation deteriorated, the one-month SBI rate would increase to
\nas high as 12 percent.<\/p>\n
The one-month SBI rate slightly increased for the third
\nstraight week to 13.03 percent on Wednesday, from 13 percent the
\nprevious week. (rei)<\/p>",
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