Indonesia c.banker sees more tightening in 2011-INTERVIEW

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Sunday September 05, 2010 10:22:04 AM GMT

* Raised reserve ratios enough for now - deputy governor

* Policy still needs to be tightened next year

By Rachel Armstrong

GWANGJU, South Korea, Sept 5 (Reuters) - A deputy governor of Indonesia's central bank said on Sunday that the recent increase in bank reserve ratios should be enough to bring inflation down in the coming months, but policy is likely to be tightened further next year.

"If the food components of inflation keep on declining because of the impact of government policy, and core inflation stays stable at this level, which is quite low, we don't have to increase rates for the rest of this year," Hartadi Sarwono told Reuters in an interview.

Bank Indonesia left its policy interest rate at 6.5 percent on Friday but raised bank reserve requirements -- cash that has to be put aside with the central bank -- to 8 percent from 5 percent.

He spoke on the sidelines of the two-day meeting of finance ministry and central bank deputies from the Group of 20 developed and leading emerging economies in the South Korean city of Gwangju.

Annual inflation in August hit a 16-month high of 6.44 percent, above the central bank's target of keeping it in a range of 4-6 percent. Core inflation moved up to 4.53 percent.

Sarwono added though that as the global economy continues to recover, policy next year would have to return to normal.

"We have already extended quite a lot of liquidity to the markets and the economy is back on track for recovery, so maybe next year is a good time to unwind liquidity and also put interest rates up," he said. (Editing by Yoo Choonsik and David Fox) (rachel.armstrong@thomsonreuters.com; +65 9542 8234; Reuters messaging: rachel.armstrong.reuters.com@reuters.net) (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)

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