BI warns that inflation may exceed target

JAKARTA (JP): Bank Indonesia warned on Tuesday the inflation target for this year might be exceeded, with the recent weakening of the rupiah against the U.S. dollar and the planned increase in fuel prices seen as the main culprits.

But the central bank said in a statement issued following a meeting of its board of governors it would do its best to keep inflation under control.

"Looking at the recent developments, the board of governors perceives that the assumptions used in setting the inflation target for 2000 must be revised," the statement said.

The government has targeted an inflation level of between 5 percent and 7 percent for this year.

The Central Bureau of Statistics earlier warned inflation for the year could reach between 8 percent and 9 percent.

Bank Indonesia said the weakening of the rupiah against the dollar had inflated the cost of imported raw materials, and next month's planned 12 percent increase in fuel prices would be followed by increases in the price of goods and the cost of transportation.

The government has targeted an exchange rate of Rp 7,000 per U.S. dollar for the year, but the rupiah plunged to as low as Rp 8,900 per dollar in July due to political uncertainty. The rupiah has been hovering near Rp 8,300 to the dollar in recent weeks.

"The board of governors will make various efforts to ensure that inflation is kept under control.

"The possibility of a further weakening of the rupiah should be carefully watched," Bank Indonesia said in the statement.

The central bank said it would continue its efforts to curb speculation in the local currency by enforcing prudential banking rulings. It also said it would continue to try to absorb excess liquidity.

"Efforts to increase the coordination between monetary policy and fiscal policy, as well as other economic policies, must be continued in a bid to maintain monetary stability," Bank Indonesia said.(rei)