Bi Likely to Maintain Tight Monetary Policy
3 September 2014 14:04 WIB
TEMPO.CO, Jakarta - Bank Indonesia (BI) is expected to maintain a tight monetary policy for the near future, responding to uncertain domestic and global economies. One of the central bank's concerns in determining interest rates is the inflation rate, projected to reach 3.5 to 5.5 percent this year.
The likeliness for BI to continue with its tight policies is also triggered by the fact that the government has yet to make any decision on subsidized fuel prices. "There are signs that the central bank will not change interest rates in the near future," Bank Mandiri chief economist Destry Damayanti, told Tempo yesterday.
Indecisions regarding fuel prices, said Bank Central Asia's chief economist David Sumual, will make it difficult for the government to control budget deficit. If the government does not raise prices, subsidy burden will become BI's as the monetary policymaker, he said.
Deyu Tan, analyst from Morgan Stanley, also predicted that BI will not change its interest rates; in anticipation of a rise in inflation that will occur after elected president Jokowi raise subsidized fuel prices.
Tirta Segara, BI executive director for communications, said the central bank are onm the watch for risks of inflation stemming from possible of fuel price adjustments in the fourth quarter of 2014. In addition, there is a variety of causes for inflation in the final semester of this year, such as the 12-kilogram LPG price hike and rising food prices caused by the El Nino.
Therefore, Bank Indonesia will continue to strengthen coordination with the government, in a bid to control inflation at the central and regional levels.
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