Bareksa.com - A fuel price rise in Indonesia may help economic growth next year if the savings from subsidies are redirected into infrastructure, a senior central bank official said on Tuesday.

The Indonesian government is under pressure to cut fuel subsidies, a politically sensitive issue in Southeast Asia's largest economy, because of a huge current account deficit that is expected to exceed 3 percent of GDP this year.

The new administration, which will take office in October, plans to raise fuel prices by as much as 3,000 rupiah ($0.25) per litre by November, a senior adviser to President-elect Joko Widodo's team, said last week.

"If the government reallocates the subsidies into infrastructure, there will be a positive gain in GDP growth," Juda Agung, executive director of the department of economic and monetary policy at Bank Indonesia, said at a news conference on Tuesday.

If the fuel price is increased by 3,000 rupiah per litre, gross domestic product could gain by 0.15 percentage points next year, Agung said, although it would also bump up inflation by an additional 3.16 percentage points - a level far above the central bank's forecast range. When fuel prices were raised in June 2013, inflation climbed to nearly 10 percent.

The central bank governor said last month it expected economic growth to quicken to 5.4-5.8 percent next year, while maintaining its inflation outlook of 3-5 percent for 2015. Economists expect slower growth in the short term after a hike in fuel prices due to weaker consumption.

Indonesia's government said on Monday it plans to allocate 344.7 trillion rupiah ($28.8 billion) for energy subsidies in 2015, down 1.6 percent from 350.3 trillion rupiah this year. The budget, which was proposed by the current administration, has not included any planned hike in fuel prices.

Parliament is set to vote on the proposed budget later this week.

Indonesia's economy grew 5.12 percent in its April-June quarter, the slowest pace since late 2009, partly due to weak exports. Annual inflation eased to 3.93 percent in August from 4.53 percent in July. (Source: Reuters)

($1 = 11,978.00 rupiah)