CENTRAL BANK KEEPS LOW RATE OVER MODERATE INFLATION

By Andi Abdussalam

Jakarta, July 6 (ANTARA) - The central bank, Bank Indonesia (BI), decided on Monday to maintain its low key rate at 6.5 percent after concluding that inflation which some quarters had predicted would be pushed up by the electricity tariff hikes this month was not worrisome.          "The BI Rate is still consistent with the inflation target of five plus or minus one percent for 2010," BI Acting Governor Darmin Nasution said after a board meeting on Monday.          A banker said last month that the government's plan to increase the basic power rate (TDL) by 10 percent and the fuel oil prices would push up the inflation rate, and cause BI's key reference rate to be raised by 0.25 to 0.50 percent.          "The 10-percent increase in the Basic Electricity Tariff (TDL)  for middle and upper class consumers  will lead Bank Indonesia to increase its benchmark rate by about 0.25 percent to 0.50 percent at least by the end of this year," PT OCBC NISP chief commissioner Pramkti Surjaudaja said.          He said an increase in the TDL was indeed unavoidable to improve the performance state-owned power utility firm PLN which was also to repair its worn-out  power transmission line networks. But the increase would also cause an increase in the domestic inflation rate. The increase in the inflation rate was expected to force BI to raise its key rate, he said.          However another banker also predicted last month that the power rate hikes were unlikely to force BI to raise its key rate.  He said the central bank was expected to maintain its key rate at 6.5 percent even though the government was planning to increase basic power rates and fuel oil prices.          According to President Director of Bank CIMB Niaga Arwin Rasyid, the government's plan to increase the TDL rates and fuel oil prices has yet to affect BI's benchmark rate.          He said that it was still too premature to analyze the impact of the power rate increases because it was still in the discourse and was still discussed by the House of Representatives (DPR).          "We could not provide responses yet before the discourse becomes a reality," he said. Moreover, the plan to increase the electricity tariffs and the price of fuel oils had sparked pros and cons, so that its realization would possibly still wait for the correct time.          "We predict that the government would also consider the two factors, even though it is now urgent to increase the electricity rates and fuel oil prices," he said.          BI Deputy Governor S.Budi Rochadi expressed the same view saying that the planned electricity tariff hike effective early July would have little effect on the inflation rate.          "It will have no significant impact on the inflation rate," he said following a function marking the transfer of the post of head of BI's Semarang office last month.          Last month, there was a slight increase in the inflation rate but Darmin Nasution said there was no need to worry about inflation in June which reached 0.97 percent.          He said the inflation was only driven by a price hike in agricultural products which was temporary in nature. "So, June's inflation is not worrisome as it will drop again," he said.          The acting BI governor said that the rate of inflation in June indeed could be considered quite high but he remained optimistic that the yearly rate of inflation would be within the targeted range of five plus or minus one percent.          "For this year it will remain within the targeted range of five plus or minus one percent," he adding that June's inflation was not driven by monetary factors and therefore in the next two or three months it would be corrected downward.          "This is not a monetary phenomenon. It is about supply of onions and chilis. So we need not take special measures. The price of chilis, onions and tomatoes rises each time but it will drop again in two or three months' time. We did not see something needs to be changed," he said.          Darmin Nasution said on Monday that national economic developments had generally shown encouraging progress. "The rate is still conducive for supporting the process of domestic economic recovery in the midst of remaining high crisis risks due to debt problems in a number of European countries," he said.          Darmin said the country's economy continued showing improvement marked by monetary and financial system stability that remained well maintained.          "Global economic improvements have had a positive impact on the performance of external sectors and investment in Indonesia in the second quarter this year so that the recovery cycle of domestic economic was stronger with the economy no longer relying exclusively on consumption," he said.          Bank Indonesia predicted the country's economy could grow around six percent in the second quarter of 2010.          The improvement in the external sector's performance was among others reflected by a surplus in the current balance of payment which is predicted not to reach US$1.75 billon in the second quarter or higher than initially predicted at US1.23 billion.           The surplus in the capital and financial transactions meanwhile is also predicted to be bigger namely reaching US$3.09 billion or higher than initially predicted at US$1.16 billion.           On the impact of the electricity price hike as of July 1, Darmin said it would be seen in the next month but it would not be big.          "It will indeed have an impact and we are predicting its direct impact is only around 0.2 percent while the indirect impact is perhaps just close to two percent," he said.***2*** (T.A014/A/HAJM/13:25/A/O001)06-07-2010 14:07:0