BI raises interest rate to 11 percent
BI raises interest rate to 11 percent
Urip Hudiono, The Jakarta Post, Jakarta
The central bank raised on Tuesday its key interest rate to 11
percent, in anticipation of a full-year inflation that may hit 12
percent following last week's fuel price hike.
Bank Indonesia (BI) also cut its outlook on this year's
economic growth to 5.7 percent, citing weak investment growth and
exports.
Announcing the central bank's latest assessment of Indonesia's
economy, BI Governor Burhanuddin Abdullah said the bank had
decided to raise its benchmark BI Rate by 100 basis points to 11
percent, in light of a likely continuing increase in inflation,
due to the Oct. 1 fuel price hike and the usual upward
inflationary trend ahead of the year-end holidays of Idul Fitri,
Christmas and New Year.
Burhanuddin explained that BI viewed the situation could push
inflation further up by between 2.25 percent and 3 percent,
meaning it could reach 12 percent by the end of the year.
"And this is an optimistic estimate, which has already
factored in our policy to increase interest rates," he said,
hinting future adjustments.
The government more than doubled the average price of fuel
last week to reduce the fuel subsidy, amid soaring global oil
prices that hover at around US$65 per barrel that have been
straining the state budget.
The Central Statistics Agency (BPS) reported on Monday that
the prices of goods and services in the country had increased by
0.69 percent in September from August, resulting in a 6.39
percent accumulated inflation during the year's first nine
months, or 9.06 percent on a year-on-year basis.
State Minister for National Development Planning Sri Mulyani
Indrawati had estimated that inflation could surge by 3 percent
to 12 percent. Coordinating Minister for the Economy Aburizal
Bakrie and Minister of Finance Jusuf Anwar, however, remained
upbeat that inflation would remain in the single digits.
Burhanuddin said though the rate hikes may hurt businesses,
they were essential to maintain a stable macroeconomic
environment needed for investment, exports and the businesses
themselves.
This year's economic growth would slow down to 5.7 percent and
to 5.9 percent next year, he said, due to Indonesia's weak
performance in attracting investments and boosting exports. BI
had previously estimated the economy to grow by 5.9 percent this
year and 6.1 percent next year.