UPDATE 2-Indonesia may ban use of subsidised fuel from Sept

(Updates with details, central bank comment)

JAKARTA, July 14 (Reuters) - Indonesia's government may ban private vehicles from using subsidised fuel after the Islamic festive season of Eid al-Fitr at the end of August, a move that would limit the budget deficit but add to inflation in the fourth quarter.

Economists say the country's central bank may need to lift its key policy rate again this year to counter inflationary pressures if the government curbs the use of subsidised fuel.

Evita Legowo, a director at the energy ministry, said the government has yet to discuss the issue with the country's parliament, which will have the final say and pushed for a delay to an earlier plan to curb fuel subsidies this year.

"At the moment, our colleagues at the House's budgeting committee prefer that private vehicles not use subsidised fuels anymore," Legowo told reporters, adding that the government wanted to impose the measure after the festive season.

Jakarta indefinitely delayed a plan to wean private cars off cheap gasoline from the second quarter, as it aims to keep a budget deficit at no more than 2.1 percent of GDP and as rising oil prices pushed up inflation.

Indonesian central bank deputy governor Hartadi A. Sarwono said on Thursday that inflation could pick up to 5.7 percent at the end of the year if the government limited the use of subsidised fuel.

This would still be within Bank Indonesia's end-year target of 4-6 percent, but higher than an expectation of inflation easing to 4.9 percent by the year-end without any measures on fuel, Sarwono said.

June inflation slowed to a 12-month low of 5.54 percent, and Bank Indonesia said on Tuesday it expected price pressures ahead to be under control, after keeping its policy rate on hold at 6.75 percent for the fifth month.