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NEWS UPDATES Asean Affairs                                9  September 2011

Indonesian central bank maintains rates

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The central bank kept its key interest rate steady at 6.75 percent for a seventh month on Thursday, highlighting concerns on an uncertain global economic recovery while ignoring a disconcertingly high core inflation rate at home.

At the same time, Bank Indonesia lowered an interbank lending rate in a move to encourage lending.

The BI’s benchmark policy rate was in line with the forecast of eight economists surveyed, given that inflation is likely to be within the bank’s preferred range of 4 percent to 6 percent this year. The BI last made a move in February, when it raised the rate by 25 basis points.

The BI joined counterparts in South Korea and the Philippines, which held key rates steady on Thursday as they paused to combat price increases while reviewing the impact of a possible slowdown in the world’s economic drivers, namely the United States and Europe.

“The decision was taken by considering the importance of maintaining macroeconomic stability amid the heighten uncertainty in the global financial system triggered by the US and Euro area debt,” BI said in a statement on Thursday.

Idul Fitri festivities pushed the consumer price index up 4.79 percent in August from a year earlier, gaining from an annual 4.61 percent rise in July, data from the Central Statistics Agency (BPS) released on Monday showed.

Analysts said that despite the rise — which marked the first increase in the CPI in seven months — the level remained manageable.

The disconcerting bit of data was core inflation, which excludes volatile items such as food and energy. It surged 5.15 percent year-on-year in August from a 4.55 percent increase in July, driven by a number of factors, including high gold prices.

On Thursday, BI widened the lower corridor of its interbank lending rates to 150 basis points below the BI rate from 100 basis points previously, encouraging banks to do more short-term lend ing to other banks.

That effectively pushed down the FASBI rate, which BI gives banks that park idle money on the central bank, to 5.25 percent from 5.75 percent, and that action could also provide banks with money that it can disperse as loans.

“This may also be seen as a preemptive move to provide extra liquidity in case we see a worsening of the financial crisis,” said Gundy Cahyadi, a Singapore-based analyst at OCBC.

Central bankers across the region will be keeping a close watch on the pace of the economies in the United States and Europe. A recession in the West could reduce Asian exports of goods such as palm oil, rubber and electronics.

The Bank of Korea kept its rate unchanged at 3.25 percent on Thursday, though it indicated that with monetary policy unchanged it was difficult to achieve its target of inflation — currently above 5 percent — 4 percent. Australia maintained its key rate for a tenth month on Tuesday.


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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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