BI revises 1999 inflation forecast to single digit

JAKARTA (JP): Bank Indonesia revised on Tuesday its 1999 inflation forecast to a single digit from an earlier projection of 10 percent to 13 percent.

The central bank said in a statement issued after its board of governors meeting that a consequence of its tight monetary policy introduced previously would be the continued curbing of inflation.

It added that the availability of unused production capacity, a sufficient supply of basic necessities, the undisturbed distribution of goods and a stronger and stable rupiah would help the country reach the new inflation target.

"All these factors are expected to continue (to curb inflation) over the next few months so that the inflation rate by the end of 1999 could reach a single digit, which is lower than previously projected," BI said.

It said the aforementioned factors had been part of the reason for negative inflation over the past four months.

Inflation in March, April, May and June respectively was 0.18 percent, 0.68 percent, 0.28 percent and 0.34 percent.

The economy suffered hyperinflation of 77.63 percent last year when the economic crisis was at its peak.

"Based on the positive development, the board of governors decided the course of the monetary policy in the coming months would be to continue to ease the liquidity condition carefully," BI said.

It added that a consequence of easing the liquidity condition could have a bad effect on inflation.

"With the expectations of a lower inflation rate and the relative stability in the exchange rate of the rupiah and in line with continuity in relaxing the liquidity condition, the interest rate of one-month promissory notes at year-end is estimated to be lower than the previous projection," the central bank said.

Bank Indonesia deputy governor Miranda Goeltom projected on Monday that the benchmark interest rate of one-month Bank Indonesia promissory notes (SBI) would drop to below 15 percent by the end of this year.

The central bank earlier projected the benchmark rate would fall to around 17 percent.

Miranda also said the benchmark rate was expected to fall by between 100 to 150 basis points to more than 17 percent at Wednesday's auction.

The benchmark rate hovered at more than 35 percent early this year, and at 70 percent last August.

She also projected that the interest rate on three-month SBI promissory notes would drop to below 15 percent by year-end compared to the current level of 23.33 percent.

Bank Indonesia said the improving trend of monetary conditions had started to revive the real sector.

The central bank pointed out that several banks had started to lend limited amounts of money, had shown positive second quarter gross domestic growth and had a pick in foreign capital inflow primarily through the stock market.

"With a relative stable political condition, the board of governors is optimistic that this development will provide positive sentiment to the process of sustainable economic recovery," Bank Indonesia said. (rei)