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onsumer prices fell for the second consecutive month in February despite steep increases in the price of rice, which, it had been previously feared, would cause inflationary pressure.

Month-on-month the consumer price index (CPI) declined by 0.36 percent in February, as prices remained manageable thanks to sufficient food supply and distribution, the Central Statistics Agency (BPS) reported on Monday.

That took year-on-year inflation in February to 6.29 percent, lower than the 6.96 percent a month earlier. Core inflation '€” a measure of long-term price levels that excludes volatile food and government-controlled commodities '€” was stable at 4.96 percent in February.

BPS deputy head of statistics Sasmito Hadi Wibowo noted that historically Indonesia rarely recorded month-on-month deflation in January and February, with the most recent such deflation recorded in 1985, as price levels normally rose at the beginning of the year.

Factors contributing to the deflation included falls in the prices of chilies, chicken and meat, while the rice-price increase '€” which has dominated news headlines in recent weeks '€” only contributed 0.1 percent in inflationary terms during the month, said Sasmito.

This is because the surge in the price of rice only occurred in certain areas such as Jakarta, while almost all provinces in Sumatra recorded deflation in rice prices as they experienced an earlier-than-expected harvest season, he explained.

The 0.36 percent monthly deflation in February was better than Bank Indonesia'€™s (BI) forecast, with the central bank earlier predicting at least 0.2 percent deflation during the month.

The downward trajectory of inflation played a role in the latest monetary easing implemented by BI, with the central bank surprising the market last month by lowering the benchmark BI rate by 25 basis points to 7.5 percent.

The latest deflation figures in February might encourage BI to move toward a '€œmore neutral'€ interest-rate setting, following years of consistently emphasizing a tight-bias monetary-policy stance, said ANZ economists Daniel Wilson and Glenn Maguire.

'€œBI does not want to be perceived as being too aggressive, but their policy rates are shifting to their economic reality,'€ they wrote in a research note distributed on Monday.

BI'€™s top executives will hold their monthly board of governors'€™ meeting on March 17 to decide any adjustment to interest rates.

Consumer prices are expected to remain manageable throughout this year with BI'€™s inflation target being set at between 3 and 5 percent.

The recent rise in the Premium gasoline price to Rp 6,800-Rp 6,900 per liter from Rp 6,600-Rp 6,700 last month will also have little effect on inflation, analysts say.

Institute for the Development of Economics and Finance (Indef) Ahmad Erani Yustika said that every Rp 1,000 increase in the gasoline price would lift inflation by 1 percentage point '€” with a 0.2 percent full-year increase in inflation as a result of the Rp 200 fuel-price hike.

Citibank economist Helmi Arman predicted that BI might soon undertake an '€œasymmetric policy rate move'€, lowering the BI rate while keeping the overnight facility (Fasbi) rate steady.

Any adjustment in the Fasbi rate '€” a rate that commercial banks get when depositing their funds overnight in BI, and currently standing at 5.5 percent '€” would have a significant impact on rupiah and bond yields as it acts as a benchmark for interbank rates (JIBOR) and thus overall liquidity in the financial system.

'€œThe deflation is not broad based,'€ Helmi argued. '€œThe drivers were primarily chili prices and transportation, which had been pretty much anticipated.'€