BI Maintains Benchmark Interest Rate At 7.75 Percent

Jakarta (Antara Bali) - Bank Indonesia (BI) has decided to maintain the benchmark interest rate at 7.75 percent despite a decline in the inflation rate due to fuel price reduction on January 1, 2015.

        "If fuel prices continue to fall, this will have a deflationary effect on the price of goods in 2015. It is estimated that the impact of the decline in oil prices from the previous range of 100 dollars  to 50 dollars a barrel will have a positive impact on the inflation," the central bank's economic and monetary policy department executive director Juda Agung said here on Thursday.

        BI through the Board of Governors (RDG) on Thursday,  decided to keep the benchmark interest rate at 7.75 percent set in the wake of the government's policy to  increase fuel price by Rp2,000 a liter on November 18, 2014. The government finally lowered the price of subsidized fuel on January 1, 2015 following a decline in global oil prices.

        Juda said BI's monetary policy also had considered the increasing fuel consumption if the fuel prices were lowered again. The rising fuel consumption could trigger a rise in oil imports in the current account.

        BI directed the inflation rate at a range of 4, plus and minus 1 percent in 2015 to 2016, and targeted to keep down the current account deficit at less than 3 percent of GDP.

        Meanwhile, BI spokesperson Tirta Segara remarked that the tight monetary policy taken by BI by maintaining the benchmark interest rate at 7.75 percent was also based on the evaluation of the Indonesia's economic development in 2014 and the economic outlook for 2015 and 2016.

        Tirta affirmed that the central bank would maintain the inflation target of 4, plus and minus 1 percent, by combining monetary and macro-prudential policy, payment system policy, and strengthening coordination with the government. BI believed that the downward trend of global oil prices would contribute to deflation.

        BI expected that the core inflation rate in 2015 could be kept in check after it could be controlled at 4.93 percent (yoy) in 2014.

        "Bank Indonesia will continue to strengthen coordination with the Central Government and Local Governments through the Regional Inflation Control Teams (TPID) and Inflation Control Teams (TPI), in controlling both food inflation and administered prices," he noted.

        Asked about economic growth projections, Tirta explained, the monetary authority estimated that the economy could grow at a higher pace in 2015 at 5.4 to 5.8 percent. The target can be achieved, if the pace of structural reforms was conducted by the government consistently. As for 2014, the central bank predicted the economic growth rate at 5.1 percent.

        "In contrast to 2014, besides strong household consumption, high economic growth in 2015 will also be fueled by the expansion of government consumption and investment in line with the increase in the fiscal capacity to support productive economic activities, including infrastructure development," he said. (WDY)