BI Expected to Keep Key Rate at 6.75 Pct

Jakarta - Bank Indonesia (the central bank/BI) is expected to keep its key interest rate at 6.75 percent this month despite a rise in the monthly inflation rate last month, analyst said. If the benchmark rate was raised it would strengthen the rupiah's exchange rate. But if the local unit continued to increase it would hurt Indonesia's exports, Ifan Kurniawan of PT First Asia capital said here on Tuesday. Ifan said the monthly inflation rate increased slightly ahead of the second half of 2011, fueled by the high prices of basic necessaries, rice in particular prior to the fasting month of Ramadhan. An increase in money supplies caused by payment of 13th salaries to civil servants in the second half of 2011 was expected to add pressure to the inflation rate, he said. To ease inflationary pressure, the government was trying to meet rice needs by importing the staple from Thailand, he said. He said the government was very concerned about the basic necessaries to avoid a steep rise in the inflation rate. Therefore, he added the central bank would likely keep the key rate, locally known as BI Rate, at a level of 6.75 percent until the end of 2011 so that the rupiah's fluctuation would not be out of a normal range. "We are optimistic the rupiah still has a chance of strengthening although the increase is relatively small," he said. The Central Statistics Agency (BPS) said on Friday the monthly inflation rate rose to 0.55 percent in June from 0.12 percent a month earlier, lifted by a rise in the prices of basic necessaries. BPS Head Rusman Heriawan told a press conference early this month the cumulative inflation rate for the first half of 2010 stood at 1.06 percent. In year-on-year cumulative terms, the figure dropped to 5.54 percent from 5.98 percent last year. The June 2011 inflation rate also shows a decline compared with June 2010 when it stood at 0.97 percent.