The planned increase of electricity tariff in early second half this year will not significantly accelerate inflation, the central bank said, maintaining its inflation estimate at between 4 percent and 6 percent.
“There is an effect but it’s really small ... We don’t see a serious problem although the tariff of certain [category of] VA electricity is raised,” acting Bank Indonesia (BI) Governor Darmin Nasution said Friday.
In the proposed 2010 state budget revision the government plans to raise electricity tariff in the second half of 2010 for users with above 6,600 VA electricity that consume more than 50 percent of national usage, prior to an approval from the House of Representatives.
BI Deputy Governor Hartadi A. Sarwono said in a statement issued Thursday night there would not be excessive inflationary pressures in 2010 and 2011 as the economy would not reach its maximum potential in these two years.
BI also estimates inflation next year will range between 4 percent and 6 percent.
Inflation in February rose 3.81 percent from a year earlier because of a surge in rice price, the main staple food of 230 million Indonesians, the Central Statistics Agency said.
BI said inflation in early this year was caused by a temporary increase of rice price, and March might see a deflation because of the harvest season.
Bank Danamon economists Helmi Arman and Anton Gunawan said electricity tariff hike would push up inflation by 0.3 percent to 0.5 percent from their earlier forecast of 5.3 percent. “In this regard, the government’s inflation forecast of 5.7 percent doesn’t look very far off the mark,” they said in a statement after meeting Finance Minister Sri Mulyani Indrawati on Thursday.
The government has revised up its inflation estimate from 5 percent to 5.7 percent in the proposed
2010 state budget revision. Yet the economic growth is maintained at 5.5 percent.
BI has kept its benchmark interest rate at 6.5 percent for the seventh straight month to spur economic growth and boost bank lending.
A low BI rate will allow banks to cut lending rates, therefore easing borrowing costs for businesses to expand.
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