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The central bank believes that inflation may well drop to
below 6 percent this year, but warns it could also move up to 7 percent
again next year on possible inflationary pressures ahead.
"There are several factors that we see in 2007 that could push up
inflation again," Bank Indonesia governor Burhanuddin Abdullah said
Monday.
"So, in our view the 6.5 percent inflation assumption for next year's
budget, and BI's own inflation target of 6, plus or minus 1, percent,
still remain valid so far."
Burhanuddin said that inflationary pressures ahead could come from the
possibility that the high prices for Indonesia's export commodities
could begin to decline, thus reducing their previous beneficial
influences on the country's foreign exchange reserves.
The Central Statistics Agency (BPS) indeed recorded slower exports in
terms of earnings during September and October, although it did not say
whether this was due to lower export volumes or values.
Another factor, Burhanuddin said, was the possibility that global
interest rates would start to rise again, which would eventually
translate into Indonesian import costs.
The U.S. Federal Reserve has kept its rate steady at 5.25 percent over
the past three months after two years of increases, while the European
Central Bank and the Bank of Japan nudged up their rates over the year.
Inflation in Indonesia has continued to slow, clocking in at only 5.27
percent in the year to November, having brushed off the inflationary
effects of last year's fuel price hikes.
The country saw inflation soar to some 17 percent at the start of 2006.
Lower inflation has enabled BI to cut rates from 12.75 percent to 10.25
percent at present to help boost growth in Indonesia's
consumption-driven economy.
With only December to go, and despite prices usually rising over the
Christmas and New Year holidays, inflation may well come in at around 6
percent this year. The government assumed an inflation rate of 8.5
percent in the 2006 budget, with BI putting it within a range of 8
percent, plus or minus 1 percent.
Analysts have, however, attributed the recently slower inflation to a
weakening in people's purchasing power, thus lowering the demand for
goods and services compared to the supply.
Burhanuddin acknowledged this possibility, saying BI would therefore
gear its monetary policies ahead to maintaining a balance between
inflation and economic growth.
"We want inflation in the long term to remain low, but at the same time
also providing the possibility for growth," he said.
"It will be no use if inflation is low but people have no jobs or
cannot purchase goods due to a lack of money.".
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