BI confident inflation rate won't exceed 40 percent

JAKARTA (JP): Bank Indonesia is optimistic that inflation will not exceed 40 percent this calender year even though it reached nearly 20 percent in January and February alone, a central bank executive said here yesterday.

The central bank's deputy director, Hartadi A. Sarwono, said yesterday that although it was difficult to predict what would happen in the next eight months, it was still possible to ease the high inflationary pressure.

He said the central bank would continue to cut money supply to reduce inflationary pressure from the demand side.

According to the central bank, narrowly defined money supply (M1), which includes currency and demand deposits, rose 12.15 percent in December last year and 18.45 percent in January to reach Rp 92.8 trillion. It declined to Rp 92.5 trillion in February.

The central bank also said that broadly defined money supply (M2), which includes M1 and quasi money, rose 7.6 percent in December, and 26.73 percent in January to reach Rp 450.7 trillion, but decreased to Rp 430 trillion in February.

"The growth in money supply will be lower in the coming months," he said on the sidelines of an economic seminar.

The inflation rate in January and February reached 19.64 percent, which raised worries that inflation for the whole year could reach triple digits.

The government has not yet announced the monthly inflation rate for March.

Hartadi said the government was still calculating the realistic target for the country's inflation rate this year.

He indicated that the target was still being discussed by the government and the International Monetary Fund.

The IMF has been in Jakarta for more than two weeks to review Indonesia's economic reform program, which includes monetary policy in addition to four other areas.

IMF Asia-Pacific director Hubert Neiss said Tuesday that a reasonable conclusion had been gained on monetary policy.

In an effort to curb inflation and stabilize the ailing rupiah, the central bank recently raised interest rates on short- term promissory notes to as high as 45 percent per annum.

The rupiah has strengthened to between 8,500 and 9,000 against the U.S. dollar from about 10,000 due to the high interest rates. (08)