UPDATE 1-Indonesia fin min sees lower interest rates in 2010

NUSA DUA, Indonesia, June 13 - Indonesian Finance Minister Sri Mulyani Indrawati said on Saturday she expected interest rates in Southeast Asia's biggest economy to continue falling next year amid benign inflation.

The domestic bond market has rallied in recent months on expectations of monetary easing but analysts had warned that the scope for further reductions in the benchmark interest rate <BIPG> may be limited following a rebound in prices of oil and some commodities.

The central bank has cut its key interest rate by a total of 2.5 percentage points since December to 7.0 percent, and has said it may cut further in response to easing inflation and a firm rupiah currency <IDR=>.

"We target inflation to be at 5 percent plus minus 1 (percentage point), the interest rate to continue to fall and the rupiah to remain steady," Indrawati said in a prepared speech for an economic seminar in Bali organised by the central bank.

She was referring to the inflation and interest rate outlook for 2010.

The year-end inflation forecast was in line with inflation forecast of 4-6 percent for 2010 agreed between the ministry and a parliamentary working committee earlier this month.

Inflation eased to 6.04 percent in May from 7.31 percent in the previous month, thanks to lower food price pressure following good harvest of staple food rice, which accounts for a significant weighting in the consumer price index.

The International Monetary Fund said earlier in June it forecast Indonesia's inflation would decline to about 5 percent by the end of the year.