Fri, 04 Jul 2003

BI sees inflation at below 8 percent

Dadan Wijaksana, The Jakarta Post, Jakarta

Bank Indonesia expects inflation this year to be lower than 8 percent as recent improvements in macroeconomic conditions have led to lower inflationary pressures.

"The situation is better now, and public expectations regarding inflation are low. I think an inflation rate of below 8 percent this year is achievable," Bank Indonesia Governor Burhanuddin Abdullah said on Thursday on the sidelines of a hearing with the House of Representatives finance commission.

The central bank earlier this year predicted that full-year inflation could reach 9 percent.

The Central Statistics Agency (BPS) reported earlier this week that inflation in June reached 6.62 percent, lower than the year- on-year inflation rate of 6.69 percent posted in May. This was the lowest annualized inflation rate for the past three years.

The BPS said that the benign inflationary environment to a great extent had been supported by the stronger rupiah, which has helped create stability in the prices of goods on the domestic market.

"We're hoping for inflation to go below 8 percent so that we can achieve a long-term inflation target of around 6 percent, which we hope to reach in the next three years," Burhanuddin said.

Asked whether the lower inflationary outlook would provide increased impetus for the central bank to further cut its interest rate, Burhanuddin refused to give a direct answer: "We'll see," was all he would say.

Bank Indonesia has aggressively been cutting its benchmark one-month interest rate for many months. It sliced the rate to 9.30 percent in its latest auction from 9.53 percent previously, giving rise to a total cut of 3.7 percentage points since the start of the year alone.