UPDATE 3-Indonesia to nominate new c.bank gov soon

Published: 01 Jun 2010 07:51:40 PST

* President to nominate new c.bank gov candidate soon

* Acting governor Nasution seen as the strongest candidate

* Parliament likely to accept Nasution

* Deputy gov Muliaman Hadad seen as possible contender

* Nasution has said rates could stay on hold this year (Adds details of possible second candidate, inflation forecast)

JAKARTA, June 1 - Indonesia's president is expected to nominate the new central bank governor on Wednesday, officials said on Tuesday, with current acting chief Darmin Nasution firm favourite although a possible second candidate has emerged.

The post of governor has been vacant for a year, but Nasution -- seen as a policy "dove" by financial markets -- has been hotly tipped for the job for months and is seen as likely to be approved by key factions in parliament.

However, speaking on condition of anonymity, one official said that one of the bank's deputy governors Muliaman Hadad had emerged as a possible alternative candidate, travelling to the president's house at the weekend. Other sources said Hadad could be in the running for governor or, more likely, to replace Nasution in his previous role as senior deputy governor.

"The state secretary already said that everything is ready but until now we have not received the letter, so I think we should wait until tomorrow," Priyo Budi Santoso, a deputy speaker from the Golkar party in the ruling coalition, told Reuters late on Tuesday.

The president nominates the governor by sending a letter to parliament.

Nasution worked closely with former finance minister and top reformer Sri Mulyani Indrawati to tackle corruption in the tax office and is seen as a supporter of looser pro-growth monetary policy by market players.

He has said inflation will remain within the bank's target range this year, allowing Bank Indonesia to keep its key interest rate <BIPG> at a record low of 6.5 percent for the rest of 2010 to stoke growth in Southeast Asia's biggest economy.

Late on Tuesday night, Nasution said the central bank now sees year-end inflation at about 5.1-5.2 percent, or slightly above the mid-point of its previous 4-6 percent target range.

Annual inflation picked up in May to 4.16 percent, its highest in a year but still within the central bank's target range, data showed on Tuesday. [ID:nJAK192626]

"ONLY ONE NAME"

Parliament has rejected candidates in the past but politicians and analysts told Reuters they expected lawmakers to back Nasution for the role.

"There is only one name. If it is rejected, we will submit another name. But the president is optimistic," State Secretary Sudi Silalahi told reporters earlier.

Newly appointed Finance Minister Agus Martowardojo, a career banker who succeeded Indrawati this month, has also indicated that interest rates could stay on hold throughout 2011 because of tame inflation. [ID:nJAK222984]

Despite Nasution's belief that the bank can hold fire this year, markets are pricing in a first rise in rates by the end of the third quarter as commodity prices rise and inflationary pressures build.

Nasution was sworn in as senior deputy governor of Bank Indonesia in July 2009, but has effectively served as acting governor after the governor, Boediono, quit to run as President Susilo Bambang Yudhoyono's running mate in last year's presidential elections.