BI plays down inflation worries

BI plays down inflation worries

The Jakarta Post, Jakarta

Bank Indonesia Governor Sjahril Sabirin said on Tuesday that
this year's inflation target of between nine and ten percent was
still attainable, despite the high inflation rate at the start of
the year.

Sjahril also said that expected high inflationary pressure,
caused by the current flooding in several parts of the country,
was only temporary.

"So far, we believe that the (inflation) target that has been
set before is still within our reach," he told reporters during a
break from a hearing with the House of Representatives Commission
IX on financial affairs.

The Central Bureau of Statistics (BPS) reported last week that
inflation in January jumped 1.99 percent, and 14.42 percent year-
on-year following the recent hike in fuel and electricity prices.

In addition, BPS warned that the floods would also put
pressure on prices, as distribution of basic commodities would be
disrupted.

This has raised concerns that the central bank's 2002
inflation target could be missed, which might force Bank
Indonesia to once again raise its benchmark interest rate.

Over the past four weeks, the central bank has allowed the
benchmark interest rate on its one-month SBI promissory notes to
decline to around 16.9 percent.

The government and the cash-strapped business sector had been
calling on Bank Indonesia ease the high interest rate
environment.

But Sjahril said that there was no reason to halt the current
declining trend in the interest rate.

"I think that things which only affect us in the short term
should not create changes in the promissory notes" rate, he said.

He added that the increase in base money as a result of rising
demand for cash due to the current floods should not pose a
serious problem.

"The increase in the base money is not that much -- in fact,
our base money currently stands at a lower level than our end-of
-the-month target," he stated.

He was quick to add that the BI's base money target by the end
of the month stands at some Rp 117 trillion (around US$11
billion).

By contrast, a senior official at the International Monetary
Fund (IMF) called January's high inflation rate worrisome.

"That's a concern," said Daniel Citrin, the IMF's visiting
senior advisor for the Asia Pacific department, who leads a
review team in Jakarta.

Indonesian officials, he noted, "must try what they can."

He said that his team had yet to meet the central bank to
discuss the issue of high inflation.