ECONOMIST: 6.5 PCT BI RATE ONLY SERVES SHORT-TERM NEED

Jakarta, Jan 6 (ANTARA) - Bank Indonesia's decision to maintain its key rate at 6.5 percent is merely aimed at serving short-term interests, an economist said.

"In the short run, the current BI rate is still tenable because of the low inflation rate. But looking ahead, it is very likely it will move up starting in the second quarter," Ryan Kiryanto of state-owned Bank Negara Indonesia (BNI) said on Wednesday.

There would be three reasons for the inflation rate to go up, he noted.
The first one would be the impact of a hike in the global oil price to a record high of US$100 per barrel, he said.

Secondly, the better performance of the domestic economy this year was expected to push up the inflation rate.
"This will be in line with the people's increased purchasing power," he said.

The third factor would be an upward trend in global interest rates as a result of the world's economic recovery, he said.

"To make assets in rupiah attractive and avoid capital flight, the domestic interest rates must be raised too. So the BI rate will steadily move up from 6.5 percent to 6.75 percent in the first semester and to 7 percent by the end of 2010," he said.***