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Indonesian President calls meeting as inflation hits a 2-year high

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Indonesian President calls meeting as inflation hits a 2-year high
Indonesia's annual inflation jumped to a two-year high in September, which analysts say leaves the central bank with the dilemma of whether to raise rates again given the threat from the global credit crisis, reported Reuters.

President Susilo Bambang Yudhoyono held a special meeting on Monday with ministers and business leaders to discuss the impact of the global crisis as the central bank said a fall in the rupiah currency was not a cause for worry.

"God willing, there will be no repeat of the crisis 10 years ago," Yudhoyono told the meeting, adding that Indonesia had been badly hit during the Asian crisis a decade ago because of poor governance, corruption and political transition under the late former President Suharto who stepped down in 1998.

Yudhoyono did not give specific policy recommendations, although stressed the need to boost demand for domestic goods and to strengthen the social safety net.

Some analysts said with annual inflation accelerating to 12.14 percent in September, against 12.0 percent forecast by analysts and 11.85 percent in August, the central bank may be prompted to raise rates this week to curb inflation and steady the rupiah, trading at its weakest in more than two years.

But others expected Bank Indonesia (BI) to keep key rates on hold due to rising growth risks amid a global economic slowdown and more scope for aggressive rate cuts in the United States.

"While we have not seen the last of inflationary pressures, the current global financial market crisis will cast the spotlight on slowing growth sooner rather than later," said Joanna Tan, economist at Forecast Pte Ltd in Singapore.

"In tomorrow's monetary meeting, we are likely to see the central bank sit on its hands and hold rates steady," Tan added.

The central bank has raised its key interest rate five times this year to 9.25 percent from 8.00 percent in a bid to curb inflation due to high food and energy prices.

While oil prices have come off their record highs, Indonesia typically sees a rise in consumer prices during the fasting month of Ramadan, which this year fell in September.

Some analysts still expected rates to rise this week.

"One of the ways to keep foreign inflows attractive is by raising the BI rate. But, to maintain domestic consumption, we expect Bank Indonesia to limit the rate hike at 9.75 percent this year," said economist Winang Budoyo of LippoBank.

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