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Bank Indonesia Unlikely to Lift Rates in face of Inflation Hike
Dion Bisara | December 01, 2010

roduce for sale in a South Jakarta market. Indonesia’s annual inflation rose in November, above expectations and higher than the central bank’s year-end target of 4 to 6 percent. (Reuters Photo/Enny Nuraheni) roduce for sale in a South Jakarta market. Indonesia’s annual inflation rose in November, above expectations and higher than the central bank’s year-end target of 4 to 6 percent. (Reuters Photo/Enny Nuraheni)
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Jakarta. Bank Indonesia may refrain from raising its policy rate in a key meeting this week, even as inflation rose in November on surging food and commodity prices.

Consumer prices rose to 6.3 percent in November from a year ago, after a 5.7 percent rise in October, the Central Statistics Agency (BPS) said on Wednesday.

Gundy Cahyadi, an economist at Oversea-Chinese Banking in Singapore said: “The bulk of the pressure was seen to come from the food component,” which the BPS said rose 12.3 percent last month from a year earlier.

The central bank maintained its inflation target of 4 to 6 percent this year.

But accelerating inflation will not prompt the central bank to raise its policy rate when the board of governors holds a monetary policy meeting on Friday.

BI Governor Darmin Nasution said on Wednesday that the central bank might continue to tighten monetary policy on fears of persistent hot money inflow.

“As quantitative easing in the United States continues, it would increase the foreign fund inflow and put pressure on the exchange rate of emerging currencies, including the rupiah,” he said.

Analysts, meanwhile, agreed that raising the policy rate could pose more risks.

“Raising the rate attracts funds and it’s costly for the central bank to manage it,” said Eric Alexander Sugandi, an economist with Standard Chartered Bank.

The central bank has kept the rate at a record low of 6.5 percent — still the highest in the region — since August last year to support economic growth.