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NEWS UPDATES Asean Affairs        13  May 2011

Indonesia retains rate

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Indonesia’s central bank kept interest rates unchanged for a third straight month to bolster slowing economic growth, relying on an appreciating currency to contain inflation.

Bank Indonesia kept its benchmark reference rate at 6.75 percent, it said in a statement in Jakarta on Thursday.

Indonesia has refrained from boosting borrowing costs since its first move in more than two years in February, in contrast with neighbors from Malaysia to India where officials have accelerated monetary tightening.

The central bank may need to resume rate increases later this year should price pressures climb, according to Bambang Brodjonegoro, the finance ministry’s head of fiscal policy.

“Bank Indonesia is being prudent in its policy making so as to allow the economy to reach growth targets and support infrastructure development,” Destry Damayanti, chief economist at PT Bank Mandiri in Jakarta, said before the decision.

“It is still in a tightening mode amid pressure from commodity prices and is likely to raise rates once more this year.”

President Susilo Bambang Yudhoyono’s policy makers have extended fuel subsidies and let the rupiah climb the most in Asia after Taiwan this year to contain inflation.

Economic growth slowed to 6.5 percent last quarter as investment eased, after climbing 6.9 percent in the previous three months.

The Indonesian rupiah climbed to its strongest level since 2004 this month and has gained about 5 percent this year. The rupiah fell 0.4 percent to 8,558 against the dollar as of 1:37 p.m. in Jakarta.

Consumer prices in Indonesia, Southeast Asia’s largest economy, rose 6.16 percent last month from a year earlier, slower than the 6.65 percent pace in March. Prices fell in April from March. Core inflation accelerated to 4.62 percent from 4.45 percent.

“By maintaining the rate at the current level, purchasing power will increase” and boost home and vehicle purchases, said Jahja Setiaatmadja, vice president director at PT Bank Central Asia in Jakarta.

The country’s largest financial services company by market value has no plans to raise mortgage rates for the next three months as the benchmark stays unchanged, he said.

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