BI sees inflation still under control

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.