BI sees inflation still under control

The Jakarta Post, Jakarta

Bank Indonesia has forecast that currency in circulation will only increase by around Rp 5 trillion during the current one- month Ramadhan period, a level which will not create serious inflationary pressure.

Bank Indonesia deputy governor Aslim Tadjudin, said on Friday that the increase is due to the higher demand for money, as people tend to spend more during the Islamic holy month and Idul Fitri celebrations.

But he said that the increase in money in circulation was still within the central bank's target.

Aslim said that the central bank will absorb the excess liquidity through the regular weekly auction of its Bank Indonesia SBI promissory notes.

Some analysts have raised concerns over a possible hike in inflation during the remaining period of this year, as prices will go up with stronger public spending during the Ramadhan and Christmas celebrations.

This will force the central bank to boost its benchmark interest rate via the SBI auction to control inflation, which means that it will reverse the current declining trend in the SBI rate.

The central bank has been aggressively cutting down the rate during the past year. On Wednesday the benchmark rate declined to an all-time low of 8.46 percent, compared to more than 13 percent earlier in the year.

The lower interest rate is expected to make bank loans cheaper so that the corporate sector can afford to borrow more money from banks to finance expansion programs. This will in turn help push economic growth and create more jobs. The lower rate will also help ease the burden of the government in servicing its huge domestic debts.

After suffering from the devastating impact of the hyperinflation of the late 1990s, the central bank is determined to keep inflation under control. It wants inflation this year to be around 8 percent.

The Central Statistics Agency (BPS) reported earlier this week that inflation during the first 10 months of this year was still at a modest rate of 3.05 percent.