Bank Indonesia: Core Inflation May Speed Up In 2011, 2012

DJ
13-Dec-2010
JAKARTA (Dow Jones)--Indonesia's core inflation may accelerate in 2011 and 2012, Bank Indonesia said Monday, raising the possibility of a policy rate increase in the near term.
"The high (inflation) pressure during 2010 was mostly explained by volatile food inflation and administered prices, while core inflation has been controlled. Going forward, there is potential increase in core inflation in (the) year 2011 and 2012," the central bank said on its website without providing reasons for the expected increase.
Core consumer prices, which exclude volatile prices for items like foodstuff, rose by 4.31% in November from a year earlier, speeding up from 4.19% in October.
Meanwhile, inflation stood at 6.33% in November, above the central bank's target range of between 4% and 6%, and accelerating from October's 5.67%.
Earlier in the day, Bank Indonesia's Deputy Governor Hartadi Sarwono said that December inflation will likely reach 6.5%, adding pressure on the authorities to act to rein in prices.
Bank Indonesia has kept its key policy rate steady at 6.5% since August 2009. While many central banks in neighboring countries have moved to raise rates to curb inflation, Bank Indonesia has kept its rate unchanged due to worries it may attract more capital inflows, which will complicate its liquidity management.
Several analysts said that the central bank will likely choose to take administrative measures to absorb liquidity and prevent sudden reversal of the inflows before raising its policy rate.
Sarwono earlier in the day said "now is not yet the time to increase interest rates."
Analysts are divided on the timing of the first rate move, but some forecast it to be as early as the first quarter of next year.
-By Andreas Ismar, Dow Jones Newswires; 62 21 39831277; andreasismar.sandiwan@dowjones.com
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