Government forecasts drop in October inflation rate

JAKARTA (JP): The government expects inflation to lessen significantly this month due to the strengthening of the rupiah, Minister of Finance Bambang Subianto said on Wednesday.

"We expect milder inflation this month, lower than the 6.3 percent in August and the 3.75 percent in September," Bambang told reporters after a meeting of economics ministers at the Bina Graha presidential office.

He said the recent strengthening of the rupiah against the dollar would help to contain inflation this month.

The rupiah closed at Rp 8,800 against the U.S. dollar on Wednesday, compared to rates in excess of Rp 10,000 which characterized trading in September.

The current downward trend in interest rates should also have a positive impact on inflation this month, he added.

"As of October 12, we had recorded an average interest rate in the money market of 53.27 percent, down from 66.29 percent in September," he said, adding that interest rates on bank deposits had dropped to an average of 51 percent from around 60 percent over the same period.

The consumer price index, the main indicator of inflation, rose 75.47 percent between January and September. The government has said it hopes to contain inflation at about 80 percent this year.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said on Wednesday that the rupiah was likely to continue to strengthen in the weeks and months ahead.

"The current increase in the rupiah and the yen is of immense importance... (it) shows that the two currencies have been undervalued all this time," he said.

He attributed the rupiah's stronger position to a buying spree of the currency on the Singapore market, citing two possibilities for this trend.

"Either they (investors) are ready to return to Indonesia, or they see the rupiah is getting stronger and have begun to buy products here," he suggested.

Ginandjar said a stronger and more stable rupiah was essential to settle the private sector's overseas debts.

He said with a stronger currency, companies would be more inclined to join the Indonesian Debt Restructuring Agency (INDRA) and reschedule their debts.

Ginandjar said a group consisting of 300 foreign and local creditors and their debtors will meet on Nov. 2 and Nov. 3 for debts negotiations.

He said the meeting would give debt-ridden local companies an opportunity to ask for some of their dues to be written off. (prb/das)