Indonesia needs strict monetary policy: Bank Indonesia

Indonesia needs strict monetary policy: Bank Indonesia

Agus Martowardoyo. (ANTARA/Audy Alwi)

A relatively weak exchange rate may also cause inflation."
Jakarta (ANTARA News) - Indonesia is in need of a strict monetary policy because there is still a possibility of surging inflation and global economic pressure in 2015, Governor of Bank Indonesia (BI) Agus Martowardojo said.

"We still need to maintain the interest rate at the current level (7.75 percent) to keep a check on inflation so it does not hurt us," he stated at the launch of "A Legends Legacy," a book about the activities of former trade minister and BI governor Rachmat Saleh, here on Wednesday.

In a meeting in January, the board of governors of Bank Indonesia, the central bank of the county, decided to maintain the BI rate at 7.75 percent.

Martowardojo pointed out that inflation in January had, indeed, declined due to a fall in the price of oil twice and control of food prices.

He predicted that the rate of inflation in January would remain below 1 percent because till the third week of the month, the rate is expected to reach only 0.08 percent.

However, a year-on-year comparison showed that inflation in 2015 would still be high at 8 percent, he added.

Martowardojo further noted that BI predicted high inflation could also result from the threat of floods, which leads to an increase in the price of food and transportation services.

With regard to the global economy, the BI governor observed that the appreciating value of the U. S. dollar would be an added pressure that would lead to the depreciation of the values of currencies of other countries, including the Indonesian rupiah.

"A relatively weak exchange rate may also cause inflation," he remarked.

Moreover, Senior Deputy Governor of Bank Indonesia, Mirza Adityaswara, noted on the occasion that countries such as Brazil would also maintain a high interest rate, fearing high inflation.

He added that the tight monetary policy would be maintained to prevent the impacts of the uncertainty over the U. S. Federal Reserves plan to raise its interest rate.

"Indonesia has been able to control inflation as the deficit in the transactions of current goods and services has been stabilized, although the figure is still at 3 plus," Adityaswara explained.

With regard to Europes decision to reduce the rate, he stated that the move was a result of the recession there.

"India, however, is one of the fragile five countries that have been able to reduce inflation and deficit in the transactions of goods and services," he affirmed.

(Reporting by Indra Arief Pribadi/Uu.H-YH/INE/KR-BSR/S012)

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