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Indonesia’s 2010 inflation target is still within reach and price risks remain contained while the rupiah should stabilize or rise further after last year’s rally, central bankers said.

Recovering commodities exports should bring the country’s current account into surplus, underpinning the rupiah, the bankers said, noting that the currency’s recent weakness was not a sign of any significant capital outflows.

Analysts have warned that capital outflows remain a risk for Indonesia’s economy, particularly with global risk aversion heightened by concerns over Greece’s debt crisis.

“We hope our current account will be a surplus in 2010. That is good for currency fundamentals,” said Budi Mulya, Bank Indonesia’s deputy governor. “So the rupiah should stabilize with a tendency to strengthen.”

Asked if recent rupiah weakness was driven by capital outflows, Budi said: “There is no capital outflow.”

On inflation, he said that while it was present in the first half of the year, it was not worrisome.

Another deputy central bank governor, Hartadi Sarwono, said Bank Indonesia’s 2010 inflation target of 4 percent to 6 percent was still attainable.

“As for the 5 percent plus minus 1 [inflation target], the possibility [of achieving it] is still there,” he said.

Finance Minister Sri Mulyani Indrawati said on Thursday that inflation may pick up to 5.5 percent to 5.7 percent on the back of higher commodity prices.

The central bank earlier this month kept its benchmark rate at a record low of 6.5 percent, saying food prices would ease in the coming months due to the main harvest, while a stronger rupiah this year should help contain imported inflation.

Late last year, the central bank pledged to keep rates on hold throughout 2010 as long as it inflation stayed within its target. But in an interview with Reuters on Feb. 4, deputy governor Budi did not repeat that pledge.

However, economists say Bank Indonesia will have to start raising interest rates in the second quarter as inflation picks up amid signs of faster growth and strong demand.

Inflation accelerated to 3.72 percent in January from 2.8 percent in December, exceeding market forecast of 3.6 percent.

 

Reuters