13/8/07 (AFP) JAKARTA -  Indonesia may force palm oil producers to set aside a portion of their output to sell here amid rising prices in a bid to dampen inflation in Southeast Asia's largest economy, a report said Monday.

Industry minister Fahmi Idris told the Bisnis Indonesia newspaper that the new policy would be implemented in September if a June increase in the export tax on crude palm oil (CPO) did not reduce the price of cooking oil by then.

The government hiked the export tax from 1.5 per cent to 6.5 per cent.

Cooking oil based on CPO is widely used in Indonesia and a rise in its price often means higher prices for food products, fuelling inflation.

The price of cooking oil has surged by 64 per cent in the past year due to the soaring price of CPO on the global market, the Indonesian-language paper cited a trade ministry official as saying.

Indonesia has said it expects to overtake Malaysia as the world's biggest producer of CPO in 2007.