JAKARTA (Antara): Bank Mandiri, Indonesia's largest lender by assets, predicts Bank Indonesia (the central bank) is likely to keep its benchmark interest rate (BI rate) at 9 percent until the middle of this year on concern of a possible inflationary pressure in June and July.

"The results of a research conducted by BankMandiri show that there will still be inflationarypressures throughout 2007 in which core inflationin June and July will move up to 8.5 percent. The'headline' inflation in 2007 will average 6.5 percent, while Bank Mandiri's core inflation untilthe end of this year is expected to stand at 6.41 percent," Martin Pangabean, chief of Bank Mandiri's economic division, said in a media briefing here on Tuesday.

The expected inflationary pressures would makethe monetary autorities (Bank Indonesia) more careful in lowering the BI Rate, he said. "If it (Bank Indonesia) pushes through with a further cut in BI Rate, it will fearfully prompt capital and eventually put a strain on the rupiah's exchange rate," he said.

Besides the inflationary pressures, the difference between domestic and foreign interest rates would also prevent national banks from lowering their lending rates, he said.

The upward trend in Japanese interest rates and the impact of the US inflation on the Fed Rate were another reasons why national banks maintained their lending rates, he said.

"Admittedly, the US inflation shows a downward trend, but it is not directly coupled with a drop in interest rates. The Fed is expected to lower its rates in the middle of this year," he said.

Under these circumstances, he said, Bank Indonesia would engineer soft lending rates so a drop in the lending rates would have no significant impact on the rupiah's stability.

"Engineering soft lending rates is needed as Bank Indonesia is on the verge of lowering further its key rate," he said.

"Until the end of 2007, BI Rate will expand in the range of 8.5 percent to 8.75 percent," he said.

The central bank said recently it was keeping its key rate at 9 percent for the time being.(***)