BPS sees inflation at 5-6%

The Jakarta Post, Jakarta

The economy is likely to enjoy a much lower inflation this year of around 5-6 percent, according to head of the Central Statistics Agency (BPS) Soedarti Surbakti.

She told reporters on Tuesday that her office subscribed to the recent inflation forecast made by the central bank.

"There is a possibility, especially if there are no extreme situations, that (5-6 percent) can be reached," she said.

She explained that her office had already factored in the rise in prices of goods before the Idul Fitri Islamic holiday in November, as well as year-end festivities.

The government had forecast an average inflation rate of 9 percent for this year, compared to a double-digit rate of 10.03 percent last year.

The relatively benign inflation environment during the first half of this year, however, prompted Bank Indonesia to revise downward the inflation target to 5-6 percent.

The relatively low inflation was partly due to the rapid appreciation of the rupiah against the U.S. dollar, which lowered the prices of imported raw materials and other goods.

The favorable condition thus allowed the central bank to continue to lower its benchmark interest rate and encourage banks to also lower their lending rates, so that loans would be more affordable to the private sector. The lower interest rate would also help the government in servicing its huge domestic debts.

The International Monetary Fund and World Bank have praised the government's achievements in lowering the inflation and interest rates, stabilizing the rupiah and cutting the state budget deficit, but they have urged it to press ahead with key economic reform programs to improve the investment climate here.