indonesiaxpose: Indonesia says inflation rises to almost 7 percent in 2010

Indonesia says inflation rises to almost 7 percent in 2010

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JAKARTA--Indonesia's central bank faced fresh pressure to raise interest rates on Monday after data showed inflation for 2010 reached almost seven percent due to rising food prices.

However, analysts said the bank will not increase lending costs immediately as it keeps tabs on the core inflation rate, which excludes the volatile cost of food.

And the country's finance minister said the economy was in a much better state than previously forecast.
The Central Statistics Agency said inflation for 2010 came in at 6.96 percent, well up from the year earlier figure of 2.78 percent, although the core rate eased slightly to 4.28 percent.

“Bank Indonesia's target for core inflation is under five percent. It may raise interest rates if core inflation rises above five percent,” Syailendra Capital investment analyst Lanang Trihardian told AFP. “This will affect loan rates, reduce net profit for companies, and raise costs of doing business in Indonesia,” he added.

But analysts say such a move would be of little concern to many investors as foreign money will continue to flow into Southeast Asia's largest economy due to its strong macro-economic fundamentals.

“The banking and corporate sectors are strong, foreign reserves are at an all-time high, the rupiah is getting stronger, foreign funds will continue to flow into Indonesia,” Ciptadana Securities director John Teja said.
Indonesia's last interest-rate move was a cut to 6.50 percent in August last year as the economy powered through the global financial crisis on the back of strong domestic demand and commodities exports.

Rice prices accounted for 1.29 percent of the overall inflation last year. Other contributors include electricity, gold jewelry, chilies and onions, agency chief Rusman Heriawan was quoted as saying by Antara news agency.

Month on month the inflation rate rose 0.92 percent in December, well up from the 0.60 percent jump in November, the agency said. Meanwhile Finance Minister Agus Martowardojo said the country's budget deficit last year stood at 0.6 percent of gross domestic product, much better than an estimate of 1.0-1.1 percent.

He added that revenue stood at 1,014 trillion rupiah (US$112.6 billion) or around 22 percent above its target.

Its spending was 1,053 trillion rupiah, only around 93 percent of its target. Under-spending has been a persistent problem in the country largely due to overlapping regulations, which delay many projects.

President Susilo Bambang Yudhoyono on Monday said the economy is expected to grow 6.4 percent in 2011, unemployment to dip to seven percent and poverty to fall to 11.5 percent.