Cakrajiya Ciptana (CCi)
Media : Jakarta Globe
Date : Wednesday, March 24, 2010
Page : B1
Tone : Neutral
Position : Top-Center
Section : business
Bank Indonesia will not review its monetary policy in light of rate hikes by other central banks in the region because it remains comfortable with the outlook for domestic inflation, Senior Deputy Governor Darmin Nasution said on Monday.
Darmin said Indonesia's benchmark interest rate "does not have to follow other countries'. We have our own considerations and conditions."
He said domestic inflation was expected to remain "on track with the central bank's estimate "so there is no urgency to review the level of the BI rate."
Deputy Governor Hartadi Sarwono went a step further, saying the central bank may keep interest rates unchanged this ' year as inflationary pressure remains benign, Bloomberg reported on Monday.
India on Friday joined Australia and Malaysia in lifting interest rates this month. It was India's first rate hike since July 2008, and was meant to fight rising inflation.
The Reserve Bank of India hiked its benchmark rates by a quarter percentage point.
Analysts said the markets feared that more Asian central banks would follow suit after India's move.
"BI appears very comfortable about inflation. We are a little less so," said Johanna Chua, an analyst for Citigroup in Singapore. "We are expecting inflation at or slightly above 6 percent at the end of 2010, depending on the impact of the electricity tariff hike."
Chua said the group estimated that the government's plan to raise the electricity tariff by 15 percent in July would raise the inflation rate by 0.3 to 0.5 percentage points.
Bank Indonesia has forecast inflation in the range of 4 percent to 6 percent this year. Infla
tion was recorded at 2.78 percent in 2009.
The central bank maintained its benchmark interest rate at 6.5 percent on March 4 for the seventh-consecutive month.
On the risk that Bank Indonesia might fall behind the inflation threat in adjusting its key rate this year, Chua said: BI appears very reluctant to hike policy rates and remains very confident about the sustainability of capital inflows. Its tolerance threshold for real policy rates may have even fallen below its usual 100-to-200-basis-points range."
But Chua said Bank Indonesia would eventually have to hike its key rate, with Citigroup expecting a hike of 75 basis points this year as one option, and 50 basis points as a minimum.
On the rupiah, Chua said the central bank was likely to let the currency strengthen to a level of Rp 9,000 per US dollar, which she predicted would happen in the second quarter of this year.
"We think BI is more tolerant of IDR appreciation than raising interest rates to temper inflation," she said.
"We think near-term momentum for the IDR remains positive, targeting 9,000 in the coming months."