Indonesia's inflation climbs to 20 month-high

15:16, January 03, 2011      

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Indonesia's inflation in December accelerated to a 20 month-high, higher than expectation, as food prices picked up, but core inflation and huge capital inflows may lead the central bank to refrain from raising interest rate this month, officials and analysts said here Monday.

The National Statistic Bureau announced that inflation reached 6.96 percent in December, year on year, with core inflation 4.28 percent.

"This is beyond our expectation," Head of the bureau Rusman Heriawan said.

The central bank has targeted 4 to 6 percent range of inflation last year.

The bank may not raise its benchmark interest rate at its meeting reviewing the rate earlier in January as the core inflation was still below their limit of 5 percent and it has said that it prefer to use non-interest policies to contain inflation pressure to prevent grater capital inflows which may destabilize the economy, analyst from CIMB Niaga bank Winang Budoyo told Xinhua on Monday.

He said that the bank may start raising rate at the end of the second quarter or at the beginning of the third quarter.

"Core inflation may still below 5 percent in coming months," Purbaya Yudhi Sadewa, another analyst at Danareksa told Xinhua.

The analysts have forecast that inflation pressure from food prices may still high this year despite great rice harvest in February and March.

Indonesia has unveiled steps to make the capital inflows park longer in the country, such at the real sectors. A preparation has been planned to stabilize bonds prices on the event of sudden reversal, by asking Indonesian banks and firms to buy the bonds.

The central bank has tightened rules on banks' foreign- exchange holdings and overseas borrowing to prevent the sudden reversal of capitals.

The government would not raise domestic oil prices this year although the global oil prices have soared, Coordinating Minister for Economy Hatta Rajasa has said recently.

Indonesia's economy is expected to accelerate at 6 percent this year.

Source: Xinhua
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