The central bank says high inflation in June was not due to a monetary phenomenon but instead resulted from problems hampering the distribution of commodities and there is no need for a change of policy on the benchmark interest rate.
Bank Indonesia acting governor Darmin Nasution told reporters Friday that based on previous experience, price inflation from supply bottlenecks tends to revert to "normal conditions" after two or three months as high commodity prices prompt producers to increase production, which would result in price adjustments.
"We don't have to worry too much because it's still within a range of 5 percent, plus or minus 1 percent, as noted in our projections at the beginning of the year," he said.
Darmin added the inflation rate was still on track and "we don't see anything that should be changed," referring to the central bank's interest rate policy.
The statement confirmed analysts' views that the pace of inflation, which reached 5.05 percent year-on-year in June, was not enough to affect the interest rate. BI has kept the rate unchanged for 11 months.
A survey by Bloomberg says that 18 economists said BI will leave the reference rate unchanged at 6.5 percent at its next policy meeting on Monday.
"The inflation picture going forward is still tame," said Wellian Wiranto, an economist at HSBC Holdings Plc in Singapore. The June inflation rate of 5.05 percent "is hardly going to sway Bank Indonesia from its long-held dovish stance, given that there is not much evidence suggesting the price pressures may turn endemic," he said, as quoted by Bloomberg.
Indonesia has held out as Asia-Pacific peers including Taiwan, Australia, India and Malaysia raised borrowing costs this year, even as inflation accelerated in Southeast Asia's largest economy, Bloomberg said.
Amid overall annual inflation projections that were still on track as of June, Central Statistics Agency head Rusman Heriawan said the 0.97 percent monthly increase in June was unusually high.
BI spokeperson Diffy A. Johansyah said the central bank saw an indication of stronger inflationary pressure in cities and in rural areas caused by price volatility of foodstuffs, such as vegetables and spices.
"Continuous rainfall in recent months and problems of distributions caused by lack of transportation and infrastructure contributed to the supply decrease of those two commodities," Diffy said.