Central Bank warns monetary condition must be monitored<\/p>\n
JAKARTA (JP): Bank Indonesia warned on Wednesday that the
\ncurrent development in retail prices and in the rupiah must be
\ncarefully watched to avoid missing the inflation target set for
\nthis year.<\/p>\n
Bank Indonesia deputy governor Achjar Iljas said that domestic
\ninterest rates may have to be raised further if the rupiah
\ncontinued to weaken and prices increase faster than expected.<\/p>\n
\"We have to be more careful. We don't want inflation to be
\nhigher than the target,\" he said at a weekly news conference.<\/p>\n
\"A trend of higher interest rates is inevitable under the
\ncurrent conditions. But we don't want to see interest rates
\nincrease drastically because that would put a heavy burden on the
\neconomy, and they would be difficult to reduce once already
\nhigh,\" he added.<\/p>\n
He pointed out that the central bank had worked very hard to
\nbring down the interest rate of the Bank Indonesia one-month SBI
\npromissory notes from a record 70 percent level in August 1998 to
\nthe current low level.<\/p>\n
\"We hope the desired monetary stability can be achieved
\nwithout the expensive cost of high interest rates,\" he said.<\/p>\n
The interest rates on one-month SBI notes rose for the fifth
\nconsecutive week at Wednesday's auction to 11.13 percent, up from
\n11.07 percent at the previous week's auction, which the central
\nbank said was largely due to the weakening of the rupiah.<\/p>\n
The interest rate on three-month SBI notes also increased to
\n11.09 percent, up from 10.91 percent last month.<\/p>\n
Achjar said that necessary monetary measures had to be taken
\nimmediately because of its direct impact on inflation.<\/p>\n
\"We can't raise interest rates now and expect inflation to
\nfall next month. There's a certain impact,\" he said.<\/p>\n
The rupiah has weakened over the past month due to a
\ncombination of domestic political and social problems, and the
\nrecent increase in U.S. Federal Reserve interest rates.<\/p>\n
The local currency closed lower at Rp 8,630 per U.S. dollar on
\nWednesday compared to Rp 8,575 on Tuesday. The government
\nexchange rate target for 2000 is Rp 7,000 per dollar.<\/p>\n
Achjar said the weakening rupiah would contribute to a higher
\ninflation level because imported goods would cost more.<\/p>\n
He said Bank Indonesia had been \"optimal\" in its efforts to
\ntry to stabilize the local unit through a combination of selling
\nits dollars and raising the interest rates of its SBI notes.<\/p>\n
But he said that monetary measures alone could not strengthen
\nand stabilize the rupiah because domestic political uncertainty
\nand security problems throughout the country had been a major
\nfactor in causing the value of the rupiah to fall.<\/p>\n
Achjar said the central bank was now evaluating various
\nstatistics to decide whether it needed to revise its inflation
\nand other monetary targets amid the current weakening of the
\nrupiah and rising prices.<\/p>\n
\"We're still waiting for the June data to come out with a firm
\ndecision,\" he said, adding that the central bank was optimistic
\nthat its initial inflation target for this year was still within
\nreach.<\/p>\n
Bank Indonesia has targeted inflation to be in the range of 3
\npercent to 5 percent this year, and 5 percent to 7 percent if the
\nincrease in the government administered prices was taken into
\naccount.<\/p>\n
Inflation in May was 0.84 percent compared to 0.56 percent in
\nApril, sending the January to May inflation level to 2.35
\npercent.<\/p>\n
May's inflation was largely due to an increase in government
\nadministered prices including electricity and transportation, and
\nin the market-driven prices of high-end fuel products.<\/p>\n
The government has said it would raise lower-end fuel prices
\nby an average 12 percent in October.<\/p>\n
Meanwhile, Bank Indonesia deputy director for monetary
\nresearch and policy Hartadi Adi Sarwono said the first quarter
\neconomic growth (year-on-year) was 3.21 percent, lower than the
\n5.01 percent in the same period last year.<\/p>\n
Hartadi said this was largely due to the greater than expected
\ncontraction of the agriculture sector and lower growth in the
\nmining sector.<\/p>\n
But Hartadi said there was reason for optimism because growth
\nin the manufacturing sector was higher than expected at 7.17
\npercent compared to the initial estimate of 5.78 percent.<\/p>\n
\"The central bank still expects the economy to grow by between
\n3 percent and 4 percent in 2000,\" he said. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/central-bank-warns-monetary-condition-must-be-monitored-1447893297",
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