B

ank Indonesia (BI) maintained its benchmark interest rate for a consecutive 11 months on Thursday as the inflation rate remained on track.

BI governor Darmin Nasution said on Thursday that the central bank held the interest rate at 5.75 percent as no signs of inflationary pressure was expected within the next few months.

He believed that Indonesia’s inflation rate, which was checked at 4.3 percent last year would fluctuate within the government’s target of between 3.5 percent and 5.5 percent this year.

“We maintained the interest rate and we have calculated inflationary factors such as the electricity tariff increases. We believe that inflation is within our target range,” he said. He added that the benchmark rate could be adjusted if there were unexpected external factors that could affect the country’s macroeconomic fundamentals.

Lana Soelistianingsih, an economist at the University of Indonesia, said that the central bank would have no choice but to increase the benchmark rate if the government finally decided to increase the price of subsidized fuel to curb the increase in swelling fuel subsidies.

Citing research, Lana said that an increase in the subsidized fuel price of up to 30 percent would provide an additional 2.15 percentage points to BI’s inflation target range.

“It will be a bad period as we have already increased electricity prices and minimum wage. The faster the government provides clarity on the subsidized fuel price, the better it will be. The longer it takes, the more uncertainty there will be and the more time we will need for recovery,” Lana said.

Despite the possible increase in subsidized fuel, she said, the country’s economy would remain above 6 percent. “There are strong domestic factors that could attract foreign direct investment,” Lana said.

BI expects that the country’s economic growth will be in the range of 6.3 to 6.8 percent this year and 6.7 to 7.2 percent next year.

Darmin said that the expected economic growth would be supported by increasing domestic consumption and strong investment. Better exports on the back of an improved global economy is also expected to contribute to the growth, he added.

“The global economy, including the price of exported commodities, won’t improve in the first or second quarter of the year. It will get better in the second half,” Darmin said.

Two-digit growth in lending will also support the country’s economy, according to BI deputy governor Halim Alamsyah. He said that national lending would need to grow at the range of 22 to 24 percent to support the expected economic growth.

“The initial business plan on bank on forecast for lending growth is 23.1 percent,” Halim said.

He added that third party funds were also expected to grow by 18.3 percent.

Indonesian banks reported a 22.3 percent growth in lending as of the end of November and expect to report a 23 percent increase in credit disbursement by the end of 2012, BI said.