"The planned increase in the prices of subsidized oil fuels will certainly push up inflation but BI could not help much as it is a matter of supply," Wijayanto from the University of Paramadina said.
Raising the BI Rate could even trigger an increase in credit interest rate that would put a brake on the economic development and growth after falling below expectation in the first quarter of this year, Wijayanto said.
In the first three months of the year, the country`s economy grew only 6.02 percent falling short of the government`s target of 6.8 percent, he said through an electronic letter received here on Wednesday.
He said the surge in the prices of foodstuff lately was caused more by problem in supply, therefore, the right solution to the problem is non monetary measure by improving distribution system especially for food commodities.
He said what BI could do is to help control inflation by seeking to maintain rupiah stability to reduce business uncertainty.
At the same time, BI needs to keep the rupiah value at a relatively high level to curb inflation caused by higher import prices and fuel price hikes, he said.
He said the central bank`s recent decision to keep BI rate relatively low at 5.75 percent would greatly benefit the banking sector.
"It is expected the bank credit interest rates also would remain low serving as a stimulus for the business sector," he said.
Unfortunately, the structure of the country`s banking industry tends to be oligopolistic that BI rate is not always runs parallel with credit interest, he added.
Earlier, on Tuesday, the board of governors of the central bank maintained its benchmark interest rate at 5.75 percent saying the BI rate was still consistent with the inflation target of 4.5 percent in 2013 and 2014.
The central bank said despite a deflation in the consumer price index in April, it would continue to be on guard against inflationary pressure with the planned increase in oil fuel prices.
It said it would continue to closely watch the developments in the money market and be ready with monetary operations and encourage longer term of investment in the market.
On Tuesday chief economic minister Hatta Rajasa said the government would raise the prices of subsidized gasoline by Rp2,000 to Rp6,500 per liter and automotive diesel oil (ADO) by Rp1,000 to Rp5,500 per liter.
(H-ASG/O001)
Editor: Jafar M Sidik
Copyright © ANTARA 2013
