BI expects inflation to drop to 4.5%
BI expects inflation to drop to 4.5%
The Jakarta Post, Jakarta
Bank Indonesia expects inflation this year to fall to 4.5 percent
-- the lowest in four years -- from more than 10 percent last
year mainly because of the ample food supply and a stronger
rupiah.
The central bank said in a press statement on Wednesday that
the cumulative inflation rate from January to November was 4.8
percent.
It added that inflation next year was projected to remain low
at 5.5 percent.
The government in the current state budget has targeted a
full-year inflation rate of 9 percent.
The low inflation environment has allowed the central bank to
aggressively cut its benchmark interest rate, a move that has
been expected to push banks to also lower their lending rates so
that the corporate sector could borrow more money. The lower
benchmark interest rate has also eased the burden of the
government in repaying its huge domestic debts, the rates of
which are linked to the interest rate of Bank Indonesia SBI
promissory notes.
The interest rate on the one-month SBI notes declined slightly
to 8.42 percent at the Wednesday weekly auction, compared to 8.43
percent in the previous week. The benchmark rate was hovering at
more than 13 percent at the beginning of this year.
Bank Indonesia said that this year the rupiah ranked third in
Asia, after the baht and the yen, in registering the highest rise
against the U.S. dollar.
The central bank attributed the sharp appreciation of the
local unit to a strong inflow of foreign funds used to finance
the acquisition of local assets offered through the government
privatization program and asset sales by the Indonesian Bank
Restructuring Agency.
The rupiah closed unchanged at Rp 8,495 per dollar on
Wednesday. At this level, the local unit has appreciated by
around 8 percent in value compared to Rp 9,318 per dollar at the
end of last year.
A stronger rupiah would lower production costs here as the
country's production system is still heavily dependent on
imported raw materials.
Elsewhere, Bank Indonesia said that the economy was expected
to grow at 4 percent this year, mainly driven by domestic
consumption as happened during the past couple of years.
The central bank had previously targeted the economy to expand
by between 3.5 percent and 4 percent.
The economy as measured by gross domestic product grew by 3.6
percent in 2002.
Bank Indonesia said investment and export performance fared
better than last year although they continued to have a limited
impact on overall growth.
The 4 percent growth should be able to generate some 1.6
million new jobs, the central bank said, while acknowledging that
it was far from enough to absorb some 2.5 million new job seekers
entering the job market each year.
Analysts have said that in order to be able to resolve the
huge unemployment problem in the country, the economy must grow
by between 6 percent and 7 percent, which means that investment
and export growth must be pushed higher.