Jakarta, Feb 4 (ANTARA) - The Indonesian central bank (Bank Indonesia/BI)'s decision on Thursday to maintain its benchmark at 6.5 percent is seen as a correct step in efforts to strengthen economic recovery and maintain economic stability.
"The BI decision is already on the right track. It has been decided on a number of basic considerations such as the movements of inflation and commodity prices which are showing a trend to the normal level," Bambang Prijambodo of the National Development Planning Board (Bappenas) said.
The central bank on Thursday decided to maintain its key rate (BI-rate) at 6.5 percent after its Board of Governors viewed that the 6.5 percent level was still realistic with the inflation target set at 5 plus - minus 1 percent in 2010.
BI spokesman Difi A Johansyah said the 6.5 percent reference rate was conducive to the efforts to strengthen economic recovery process, maintain financial stability and increasing banks' intermediary roles.
Improvement of domestic economic conditions is taking place as expected and is in line with the ever strengthening global economic recovery.
"The BI decision is already correct. Thus, its monetary policy needs to be supported so that it would be able to maintain our economic stability," Planning Director of Bappenas Bambang Prijambodo said.
He said that prudent monetary policy was needed in supporting the development of national economy and in curbing inflationary pressure which had now been showing a trend to the normal level.
Now, almost all countries are facing a transition period from adopting a moderate monetary policy to the tighter ones, yet they remain prudent. "Transition would not proceed too fast but in stages within the corridors of the economic conditions of respective countries," Prijambodo said.
Rising inflation is a global phenomenon generated by global economic recovery which in turn also raises global demand and commodity prices. "In Indonesia, besides by increase in global commodity prices, inflation will also be triggered by the continuous recovery of domestic economy which would perform better than in the previous year," he said.
He said that this would bring an improvement to the domestic demand and moderate exchange rate of the rupiah against the US dollar. The rupiah is expected to be stable at the Rp9,000-9,500 level per US dollar," he said.
This condition will bring the inflation in Indonesia in 2010 to the normal level such as the one before the economic crisis took place. An economic growth of six percent would also be followed by a six percent inflation.
"Indonesia only has the experience two times when its economic growth was over six percent but its inflation was below six percent, namely in 1971 and 1992," he said.
He said that Indonesia's economic growth which was likely to reach six percent in 2010 would also certainly be flowed by an increase in inflation.
"Unlike in 2009 --which is a special case when the inflation rate was only 2.78 percent due to the global economic downturn-- in 2010, the Indonesian inflation will likely return to its normal level," he said.
That's why, he said, BI was not overacting if it then adopted a cautious policy and assessed how far the inflationary pressure would affect the economic growth as a whole in 2010.
Therefore, Prijambodo believed that BI would continue to maintain the BI rate at 6.5 percent until the end of the first half of 2010. It would begin to take a tight policy in the second half of the year.
Ryan Kiryanto, economist of state-owned Bank BNI, said however recently that BI would likely move up its BI rate in the second quarter of 2010. He said that Bank Indonesia's decision to maintain its key rate at 6.5 percent was merely aimed at serving short-term interests.
"In the short run, the current BI rate is still tenable because of the low inflation rate. But looking ahead, it is very likely it will move up starting in the second quarter," Ryan Kiryanto of state-owned Bank Negara Indonesia (BNI) said.
Indonesia's inflation rate in January was recorded at 0.84 percent, bringing the year-on-year inflation rate to 3.72 percent, according to the Central Statistics Bureau (BPS).
The BPS said the 3.72 percent actually showed an increase. "The increase in the inflation rate was mainly fueled by rising food prices," BPS Chief Rusman Heriawan said.
Kiryanto argued that the inflation would increase in 2010. There would be three reasons for the inflation rate to go up, he noted. The first one would be the impact of a hike in the global oil price which could reach US$100 per barrel.
Secondly, the better performance of the domestic economy this year was also expected to push up the inflation rate. "This will be in line with the people's increased purchasing power," he said.
The third factor would be an upward trend in global interest rates as a result of the world's economic recovery, he said.
"To make assets in rupiah attractive and avoid capital flight, the domestic interest rates must be raised too. So the BI rate will steadily move up from 6.5 percent to 6.75 percent in the first semester and to 7 percent by the end of 2010," he said.
(T.A014/A/HAJM/19:20/a014)
(T.A014/A/A014/A/A014) 04-02-2010 20:51:44
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