"He also said the central bank will allow gradual appreciation of the local currency, the rupiah, which gained more than 4 percent against the US dollar in 2010"
14 January 2011
Indonesia bank chief signals policy change
JAKARTA - Indonesian central bank governor Darmin Nasution said Friday the time was approaching when monetary policy would have to tighten to tackle rising inflation in Southeast Asia's biggest economy.
"Going forward, inflation will tend to be on the rise and sooner or later, so will the core inflation," he told reporters.
Bank Indonesia's benchmark rate "will be in an upward trend as well," he said. "We're looking for the best time."
Rising food prices and their potential to spill over into core inflation have been blamed for selling on the local share market in recent weeks.
The Jakarta Composite Index soared 46 percent last year but lost almost 10 percent over three days last week as foreign funds took profits ahead of a predicted interest rate rise.
Indonesia's consumer price index rose 6.96 percent in 2010, far higher than the government's 4.0-6.0 percent target, as extreme weather ruined crops and hampered distribution.
Prices of chillies, a basic ingredient in local diets, increased five-fold to around 100,000 rupiahs (US$11) a kilogramme.
But policymakers and the central bank have until now dismissed the upward pressure on food prices as "temporary" and resisted calls to hike the benchmark rate from 6.50 percent, where it has sat for 17 months.
The government is reportedly concerned higher rates will attract more potentially destabilising "hot money" inflows from abroad, as foreign investors seek higher returns than currently on offer in Europe and the United States.
Nasution said the extent of any rate increase would depend on inflation and the potential impact on loan growth of local banks.
He also said the central bank will allow gradual appreciation of the local currency, the rupiah, which gained more than 4 percent against the US dollar in 2010.
Rates would be used in conjunction with other levers to manage the inflation threat, he added.
"For example, it is possible for the rate not to be raised too much, but in combination with a longer minimum holding period" for the central bank's tradable money market securities, he said.
Bank Indonesia is one of few central banks in Asia that has not raised interest rates despite inflationary pressures.
http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/1104723/1/.html
Indonesia bank chief signals policy change
JAKARTA - Indonesian central bank governor Darmin Nasution said Friday the time was approaching when monetary policy would have to tighten to tackle rising inflation in Southeast Asia's biggest economy.
"Going forward, inflation will tend to be on the rise and sooner or later, so will the core inflation," he told reporters.
Bank Indonesia's benchmark rate "will be in an upward trend as well," he said. "We're looking for the best time."
Rising food prices and their potential to spill over into core inflation have been blamed for selling on the local share market in recent weeks.
The Jakarta Composite Index soared 46 percent last year but lost almost 10 percent over three days last week as foreign funds took profits ahead of a predicted interest rate rise.
Indonesia's consumer price index rose 6.96 percent in 2010, far higher than the government's 4.0-6.0 percent target, as extreme weather ruined crops and hampered distribution.
Prices of chillies, a basic ingredient in local diets, increased five-fold to around 100,000 rupiahs (US$11) a kilogramme.
But policymakers and the central bank have until now dismissed the upward pressure on food prices as "temporary" and resisted calls to hike the benchmark rate from 6.50 percent, where it has sat for 17 months.
The government is reportedly concerned higher rates will attract more potentially destabilising "hot money" inflows from abroad, as foreign investors seek higher returns than currently on offer in Europe and the United States.
Nasution said the extent of any rate increase would depend on inflation and the potential impact on loan growth of local banks.
He also said the central bank will allow gradual appreciation of the local currency, the rupiah, which gained more than 4 percent against the US dollar in 2010.
Rates would be used in conjunction with other levers to manage the inflation threat, he added.
"For example, it is possible for the rate not to be raised too much, but in combination with a longer minimum holding period" for the central bank's tradable money market securities, he said.
Bank Indonesia is one of few central banks in Asia that has not raised interest rates despite inflationary pressures.
http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/1104723/1/.html
