BI LIKELY TO MAINTAIN RATE AMID US FINANCIAL CRISIS: OBSERVER

Jakarta, Oct 3 (ANTARA) - Economic observer Tony A Prasetyantono said he believed Bank Indonesia (BI) will maintain its benchmark rate at 9.25 percent due to the financial crisis in the United States.

"The BI rate is stuck in the middle - between its obligation to provide the market with an incentive and its obligation to help ease tight liquidity. Therefore, I believe BI will maintain its rate at 9.25 percent," Prasetyantono said here on Friday.
He said he initially thought that BI needed to increase its rate because liquidity in the market was relatively tight. Amid the US financial crisis, however, the BI rate needed to be lowered to provide the capital market with incentives.
"So, there is a tug-of-war between the need to raise the BI rate and the need to lower it," he said adding that the BI needs to raise its rate to respond to the tight liquidity while it also had to lower it to prevent the stock market from being affected by the US financial crisis.
He said another thing that did not allow BI to raise its rate was the fact that inflation in September was not as high as expected.
Presetyantono who is a senior economist at BNI bank predicted that the inflation rate in September would be 0.7 to 0.9 percent.
"Actually, the inflation rate had the potential to increase in the fasting month but because the people's purchasing power has been weakened as a result of relatively high inflation in the last several months, not all the potentials for high inflation in September were actualized," he added.
Therefore, he predicted the year-on-year inflation rate would be at 11.8 percent, or remain unchanged from the previous month at 11.85 percent.
"Year-on-year inflation tends to be stagnant so that the BI rate does not need to be raised," he said.