BI forecasts five percent inflation this year

Senior Deputy Governor of Bank Indonesia (BI) Miranda S. Goeltom said inflation in 2009 could register at the lower end of the central bank's projected range of 5 to 7 percent, Antara news agency reported Thursday.

"BI's latest assessment indicates inflation could be at the lower estimate," she told a Thursday hearing at the House of Representatives's Commission XI which deals with financial affairs.

She said the more moderate estimate was due to reduced inflation on imports and declining international commodity prices as well as minimal output-gap pressures and government prescribed inflation controls.

Goeltom said inflationary pressures spurred by volatile food and commodity prices would slack off as those prices declined as well.

"This will be in line with guaranteed supplies and food distribution plans for 2009," she added.

She said the impact of fuel oil price reductions in Dec. 2008 and Jan. 2009 was reflected in the deflation recorded in the past two months.

If a drop in transportation fares ensues as expected, inflationary pressures and price-setting could be minimized.

The BI senior deputy governor said she was convinced the inflation target, originally set at 6.2 percent in the state budget, would be achieved.

"The government's target of 6.2 percent is still within the range of BI's projection," she said.

"These conditions are expected to give BI the chance to lower its [benchmark] rate and banks are expected to follow suit, including BI's three-month certificates (SBI)," she said.

She said successfully achieving a three-month SBI interest rate at 7.5 percent, as assumed in the state budget, would depend on market conditions.

In the past two months, BI has cut its benchmark rate by 100 basis points from 9.25 percent to 8.25 percent.