Bank Indonesia Watches Rate Cut
Friday, 05 January, 2007 | 12:09 WIB

TEMPO Interactive, Jakarta: Bank Indonesia is applying prudent monetary policy despite the improving economy in 2006.

This caution was reflected through the decision of Board of Governors of Bank Indonesia's meeting that only cut the BI Rate with 25 basis points to 9.50 percent compared to the previous 9.75 percent.

According to the Governor of Bank Indonesia (BI) Burhanuddin Abdullah, the BI Rate cut has considered the macro economics situation in 2006 and future prospects for the economy. “We have observed the future risks as well as the achievement of the inflation target in 2007 and 2008,” he said yesterday (01/04) in Jakarta.

He said, the macroeconomics situation in 2006 did improve. The inflation rate of 6.6 percent signaled this, which was better than the target of the government and BI with an eight plus-minus one percent. The rupiah exchange rate was also stable against the US dollar. This year, BI is targeting inflation, which will reach six plus-minus one percent and inflation in 2008 with five plus-minus one percent.

With the improvement of the macroeconomics situation in 2006, he said, Bank Indonesia was optimistic that economic growth in 2006 may reach 5.5 percent. However, he said, there was still structural problems in Indonesian economics such as the weak support of the investment climate and market structure; the improper infrastructure availability; the delaying bureaucracy over the investment sector; the low productivity; and the inefficiency of production factor. “These have resulted in the low economic quality,” he said.

Finance Minister Sri Mulyani Indrawati evaluated that BI Rate cut with 25 basis points was right. It was possible that the Central Bank, she said, evaluate the high cut as appropriate after seeing inflation bounces in December 2006. “It seems that the decision was made to balance things,” she said yesterday (01/04) in Jakarta.

Suryani Ika Sari, Anton Aprianto