BI sees rupiah at Rp 9,300, and inflation at 8%
The Jakarta Post, Jakarta
The rupiah's exchange rate against the U.S. dollar will likely overtake the government's estimate of Rp 8,900 for the 2005 state budget, reaching Rp 9,300 for the whole year, Bank Indonesia (BI) said.
Similarly with the inflation rate, the central bank is also seeing the possibly of it exceeding the government's target of between 5 and 7 percent, ending at 8 percent on further price surges of goods and services.
Speaking during a hearing on Thursday with the House of Representatives' Budget Commission, BI senior deputy governor Miranda S. Goeltom said that the expected Rp 8,900 exchange rate would be difficult to achieve based on current developments.
"It will most likely be between Rp 9,000 and Rp 9,300," she said.
Miranda explained that the Rp 8,900 level would most likely be unattainable as the rupiah's average exchange rate had already reached Rp 9,373 per dollar as of May. The central bank previously reported that the local currency's exchange rate had reached Rp 9,279 during this year's first quarter.
Even though the rupiah was likely to experience a gain against the greenback for the remainder of the year, a continuous strong domestic demand for dollars would offset the gain, she added.
The government is currently in talks with the Budget Commission to revise the 2005 state budget, taking into account among others, recent rupiah downturns, rising inflationary pressure, and higher oil prices.
The rupiah exchange rate was previously set at Rp 8,600 per dollar, and the inflation rate 5.5 percent. The government also upgraded its oil price assumption from $24 per barrel to $35.
Meanwhile, Miranda said that it was likely that inflation would continue to rise due to a second-round effect of the recent fuel price hike, as well as rising demand for goods and services.
The government hiked domestic fuel prices by an average of 29 percent in March to cut bloating fuel subsidies on soaring global oil prices. The decision resulted in an on-year inflation surge of up to 8.81 percent during that month, the Central Statistics Agency (BPS) reported, before dropping to 8.12 percent in April.
"For this, BI will continue to maintain its tight monetary policy, while still taking into consideration the necessity of sustaining the current momentum of economic growth," Miranda said.
The BPS reported earlier this month that Indonesia's economy had slowed slightly down to 6.35 percent during this year's first quarter, as compared to last year's final quarter of 6.65 percent.