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3-4 June 2010

Indonesia, Philippines keep rates amidst risk from turmoil in Europe

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Indonesia and the Philippines kept interest rates at record lows, judging inflation isn’t yet a threat as Asia weighs the risk from Europe’s debt turmoil, reported Bloomberg News.

Bank Indonesia left its policy rate unchanged yesterday at 6.5 percent, the lowest level since its introduction in July 2005. Bangko Sentral ng Pilipinas left the rate it pays lenders for overnight deposits at 4 percent, the lowest level since central bank data started in 1990.

The nations joined Australia and Thailand in keeping borrowing costs unchanged this week, as spending cuts by European nations battling to reduce budget deficits raised concerns the global recovery will falter. The Philippine central bank cut its inflation forecast for this year and next, and Bank Indonesia kept its estimate at 4 percent to 6 percent.

“They are watching the developments in the Euro zone,” said David Cohen, an economist at Action Economics in Singapore. “People are nervous about the turmoil that may spillover to the global economy,” and policy makers are “being patient” as inflation remains “relatively contained,” he said.

Fitch Ratings lowered Spain’s rating to AA+ from AAA on May 28, capping off a month where the escalation of Europe’s debt crisis forced the European Union and the International Monetary Fund to offer as much as 750 billion euros ($913 billion) to countries in danger of financial instability.

The Indonesian rupiah has fallen 1.8 percent and the Philippine peso 3.8 percent in the past month as most Asian currencies slid on concern a disruption in the world’s rebound from last year’s slump will force regional central banks to delay raising interest rates.

“In the face of uncertain global economic prospects and with recovery at different stages and speeds in various parts of the world, together with the flexibility provided by the inflation outlook, the board views as prudent the move to keep policy settings unchanged,” Bangko Sentral Governor Amando Tetangco said yesterday.

The Reserve Bank of Australia maintained its benchmark rate at 4.5 percent this week, after six increases in the previous seven meetings. Thailand’s central bank kept its one-day bond repurchase rate at 1.25 percent, the lowest level since July 2004, after the country’s deadliest political violence in almost two decades.

Indonesia’s inflation averaged 3.8 percent in the first five months of 2010, easing from 7.6 percent in the previous two years, giving the central bank room to delay tightening. The Philippine central bank lowered its 2010 inflation forecast to 4.7 percent from 5.1 percent, and a report today showed consumer prices rose in May at the slowest pace in three months.



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