BI to keep rates flat until yearend

BI to keep rates flat until yearend

Tony Hotland and Zakki P. Hakim, The Jakarta Post, Jakarta

Despite the soaring oil prices and the upcoming holiday
festivities, the central bank has vowed to keep inflation in
check and maintain low interest rates until the end of this year
to help spur on business activities.

Bank Indonesia's senior deputy governor Miranda S. Goeltom
acknowledged on Monday that the rocketing crude oil prices could
affect domestic inflation, but said it would only be slight and
temporary.

Also, the upcoming holidays -- Idul Fitri and Christmas --
would normally push up prices, but the central bank believes that
the effects will not be significant.

Miranda remained optimistic that full-year inflation would
stay at the central bank's revised target of 7 percent for this
year, unless something out of the ordinary occurred.

The independent central bank has now made inflation targeting
as one of its main priorities.

Concerns are rife that inflation could surpass that figure as
global oil prices, currently creeping toward US$60 dollar a
barrel, will likely force commodity prices and inflation up.

Many in the financial market have urged the central bank to
start raising its benchmark interest rate to curb inflationary
pressure, particularly at a time when the interest rate in the
United States is rising.

However, Miranda assured the public that the interest rate was
still attractive for investors to retain their rupiah-based
portfolio.

"As of now, we see that the current interest rate is still
able to offset even the expected inflation rate," Miranda argued.

The central bank's one-month benchmark rate now stands at 7.41
percent.

A relatively low interest rate is expected to make bank loans
cheaper to finance corporate activities and push economic growth
higher.

On the other hand, a higher interest rate environment is
feared to have an adverse impact on economic growth and increase
the government's burden in servicing its huge domestic debts.

The government is apparently helping the central bank's
efforts to contain inflation and keep interest rates low.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
assured the public recently that the government would not add a
burden to the public by increasing fuel prices, at least until
the end of this year.

After touring the Jatinegara and Cipinang markets in East
Jakarta, Minister of Trade Mari E. Pangestu expressed her
confidence that oil prices would not have a significant effect on
domestic prices.

"Looking at past patterns and calculations based on current
assumptions, the increase (of oil price) should not be too high,"
Mari, an economist at the Centre for Strategic and International
Studies (CSIS), told reporters on the sidelines of her visit to
the markets.

Monday's visit was Mari's first market inspection since she
was appointed last week. During the visit, she met with vendors
and checked the prices of staple foods.

As of Monday, the prices of staple foods in Jatinegara and
Cipinang markets were relatively stable, except for certain items
like beef, red onions, potatoes and cashews, which have
experienced a slight increase.

"Based on our observation, the prices are relatively stable,
while stocks of goods are adequate. But we will keep observing
the market," said Mari.