Bank Indonesia (BI) says it has factored in the government's plan to raise electricity rates in its full-year inflation forecast of some 8 percent for 2006.

The central bank, however, has only assumed a rate increase of up to 30 percent, hinting that if rates are raised any higher it could trigger another cycle of high inflation, threatening the growth of Indonesia's consumer-driven economy.

"If electricity rates rise by a maximum 30 percent, that has already been included in our inflation target of 8 percent, plus or minus 1 percent," Bank Indonesia Deputy Governor Aslim Tadjuddin said Friday.

In its economic outlook released earlier this year, BI estimated quarterly inflation throughout the year would not exceed 4 percent. It predicted inflation would reach 3.19 percent in the first quarter on the electricity rate increase, before dropping to 0.88 percent in the second quarter.

The bank estimated inflation would pick up to 1.08 percent in the third quarter and 2.36 percent in the fourth, due to seasonal factors.

On a year-on-year basis, BI forecast first quarter inflation at 18 percent, before easing in the following quarters to about 8 percent by the fourth quarter of the year.

The government is also assuming full-year inflation of 8 percent in the 2006 state budget.

Indonesia's economy grew slower than predicted last year, with the government revising down growth from 6 percent -- as stated on the 2005 state budget -- to 5.7 percent, as a result of a surge in inflation after the government twice raised fuel prices. The central bank was forced to raise interest rates to support the slumping rupiah and tame inflation.

With state electricity firm PLN facing a financial deficit due to high oil prices, the government is considering an increase in electricity rates this year, with State Minister for National Development Planning Paskah Suzetta saying earlier this week increase could be between 18.4 percent and 48.3 percent.

PLN, the majority of whose power plants operate on oil-based fuel, will need some Rp 38 trillion to cover its operational costs this year.

Analysts say an electricity rate hike of about 40 percent could contribute to a 2-percentage-point rise in inflation, advising the government carefully to consider the size of the rate increase and its timing so as not to accelerate inflation and hamper economic growth.

Discussing the rupiah, BI Deputy Governor Aslim said an exchange rate of about Rp 9,400 per U.S. dollar would be favorable for both exporters and importers. The bank also wants more foreign direct investment to support the rupiah, as short-term capital inflow is prone to reversal at any time.

The rupiah, which so far this year has appreciated by 4.4 percent, closed at Rp 9,435 on Friday from Thursday's Rp 9,400, on month-end corporate dollar demand.