JAKARTA: Bank Indonesia is estimated to hold BI rate increase in short-term following low monthly inflation rate that reached 0.12% in May 2011 and annual inflation of 5.98%.Central bank does not need to address the May inflation extremely since the increased price in May was low in calendar year and year-on-year inflation, PT Bank Mandiri (Persero) Tbk Head of Economist Destry Damayanti said.BI still has one more chance to increase the interest rate, i.e. 25 base points, yet, its still unnecessary to raise BI rate in the near future, she added, yesterday.According to her, its still unnecessary to raise such rate because there are still economic growth target that need to be pursued while the undisbursed loan is still large. If BI rate is increased then it will potentially complicate the government in achieving the target and distributing credit.Destry estimates the inflation until the end of year is still in accordance with governments target as long as there are no restriction policy and raising prices of subsidized fuel.Central Bureau of Statistics (BPS) announced May inflation has ended the deflation that occurred two months earlier. Indonesia's trade balance surplus in April shrunk to US$1.63 billion from US$1.8 billion in March.BPS Deputy Chief for Distribution and Services Statistics Djamal said the calendar year inflation for January-May 2011 was 0.51% while year-on-year 5.98% and core inflation in May 2011 at 0.27%.Core inflation occurred because of rising prices which are not related with food price. It reaches 4.64% year-on-year he said.Consumer price index (IHK) from 66 cities shows that 51 cities experiencing inflation while 15 cities having deflation. The highest inflation occurred in Ambon with 1.66% and the lowest in Mataram, Kediri, and Denpasar (0.02%). Meanwhile, the highest deflation of -1.14% occurred in Tarakan.The rising prices of gold, fish, tomato etc contributes to the inflation in Ambon while decreasing prices of chili and beans contributes to the deflation in Tarakan.May inflation occurred nationally because of the rising prices in food group by 0.64%, food, beverages, cigarettes, and tobacco 0.22%, housing, water, electricity, gas and fuels 0.25%, and health 0.5%.In April 2011, 0.31% deflation occurred similar to previous year that was -0.32%. March deflation was the highest during the last 4 years. According to data, during such period -0.31% deflation also occurred in April 2009, -0.07% in January 2009 and -0.04% in December 2008.PT Bank Negara Indonesia Tbk Head of Economist Ryan Kiryanto believes that the inflation will be higher in June 2011 compared to May 2011 since the government plans to raise premium subsidized fuel starting in July.Expectations of higher inflation always follow the rising of fuel prices since the trader and service sector tends to precede price adjustment, he said.He predicts with such condition BI will consider to raise BI rate in July 2011 by 7% to balance the rising of year-on-year inflation, which is over 6%.Potential inflation this month will be boosted by the increase of tourism sector, telecommunication and transportation following the preparation for long holiday and new school year. He estimates inflation in June 2011 will be in range of 0.3%-0.5%.Standard Chartered Economist Fauzi Ichsan estimates the inflation will occur in June and July this year and it will increase in second half due to Eid ul-Fitr (Lebaran).Year-on-year inflation by the end of year will likely reach 6.5% if there is no fuel price hike. If there is a price hike then fuel contribution to the inflation depends on its increase. Year-on-year inflation could reach 7% if the price rises by 25%-30%, he added.Continues to shrinkBank Indonesia is pessimistic that the economic growth next year could exceed 6.5% since the economic capacity that continues to shrink will potentially overheating if it prompted continually.Bank Indonesia Governor Damin Nasution said the current macroeconomic capacity has been fully used particularly in term of supply, which was not supported by adequate infrastructure. Moreover, there is no significant progress in infrastructure construction, which makes it difficult to prompt economic growth higher than this year.The economy could grow but small and inflation will increase if forced. We tend to see the range of 6.5% -6.9% [government proposal] still too high since we want below such range.However, Indonesia have positive prospect in the future regarding potential investment level in the country that could be categorized as investment grade. The interest of foreign investor to invest capital will increase with such investment grade.BI also worried that the 2012 inflation could be uncontrollable if the government does not make any arrangement on fuel this year. The success to curb inflation next year in the range of 4.5% plus/minus 1% will greatly depending on the policy adjustments of subsidized fuel price this year.He even admitted that central bank having difficulty to reduce inflationary pressure next year because fuel prices hike are delayed until next year. According to him, inflation in 2012 will greatly depend on the fluctuation of administered prices (prices of goods that regulated by the government).However, the monetary authority agreed with the government to keep the 2012 inflation at the range of 3.5% -5.5% as long as the subsidized fuel price is increased this year.The government could not maintain the fuel subsidy policy at this time amid high worlds oil prices since inflationary pressures will also increase with the rising fuel prices, Darmin argued."We cant continue to sustain it [the price of subsidized fuel]. If its not adjusted this year, the inflation target of 4.5% or 5.5% cant be achieved. It depends on the fuel price adjustments. (10)(t06/msw)

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