Sat, 04 Jan 2003

BI won't cut rate for time being

The Jakarta Post, Jakarta

Bank Indonesia Governor Sjahril Sabirin said on Friday the central bank would not lower its benchmark interest rate for the time being because inflation was expected to be high in January, following an increase in fuel prices, electricity rates and telephone charges.

"The current rate will likely prevail for the time being. Even if there is a (rate) cut it will only be a small one," he said.

The government just increased fuel prices by between 3 percent and 22 percent, electricity rates by an average of 6 percent and telephone charges by an average of 15 percent.

There are fears that the simultaneous price hikes will spark strong inflation in January.

The interest rate on the one-month Bank Indonesia SBI promissory note currently stands at 12.93 percent.

The central bank has guided down the benchmark rate from over 17 percent at the beginning of 2002. The lower rate is not only important in helping to revive bank lending to the real sector, but is also crucial in helping to reduce the state budget burden in covering the interest rate on government bonds.

The Central Statistics Agency (BPS) reported on Thursday that inflation in 2002 reached 10.03 percent, higher than the government's single digit inflation target of about 9 percent.

BPS said an increase in electricity rates in 2002 had been the main factor for the inflation.

Sjahril said the central bank would hold talks with the government on measures to be taken to avoid strong inflation this year.

The government has targeted an inflation rate of 9 percent for 2003.

"We hope there's no need to revise the inflation target ... We don't need to be pessimistic about 2003," Sjahril said.

Minister of Finance Boediono said earlier this week that inflation would still be within the government's 2003 target despite the rise in utility prices.

He said this could be achieved if the rupiah remained stable and food prices remained under control.

He added that the central bank was expected to keep a cap on the currency in circulation to avoid stoking inflation.