JAKARTA, Feb. 4 (Xinhuanet) -- The Indonesian government will raise fuel prices by up to 30 percent in the first quarter of this year in a bid to lower the fuel subsidy.

    To limit the inflationary impact, Bank Indonesia, the central bank, has indicated it will raise interest rates or absorb the circulation of base money.

    "The first quarter of this year is the best time for us to increase fuel prices .... We are still considering if a 30 percent hike is suitable at the moment," State Minister for National Development Planning Sri Mulyani Indrawati was quoted Friday by The Jakarta Post newspaper as saying.

    "The sooner the better... The government has been burdened by the costly fuel subsidy, which has soared due to the jump in global oil prices," she said.

    The government allocated a whopping 59.2 trillion rupiah (around 6.6 billion US dollars) for the fuel subsidy last year because of rising global oil prices, against an initial projectionof 14.5 trillion (1.6 billion dollars). In comparison, 71.9 trillion (8 billion dollars) was allocated for development spending last year.

    The fuel subsidy has been set at about 19 trillion rupiah (2.1 billion dollars) for 2005, but with global oil prices showing little sign of declining that figure is expected to rise unless the government begins to lift the fuel subsidy.

    Meanwhile, Bank Indonesia has indicated it will raise its benchmark interest rate (SBI) to reach this year's inflation target. The government has targeted inflation at between 6.5 percent and 7 percent.

    "The government's plan to raise fuel prices has caused producers to hedge production costs and selling prices, thus accelerating the inflation rate," said Bank Indonesia Governor Burhanuddin Abdullah.

    "The January inflation level is worrying. The central bank will adopt a tight monetary policy to control the inflation level, with raising interest rates to be our priority," he said.

    The Central Statistics Agency announced on Wednesday the inflation rate for January tipped 1.43 percent, the highest monthly level in four years, mostly due to a rise in the prices of basic foods, housing and utilities. Enditem