UPDATE 1-Indonesia c.bank holds key rate, sees slimmer current-account deficit
JAKARTA, Oct 8 (Reuters) - Bank Indonesia held its benchmark reference rate unchanged for the first time since May on Tuesday, thanks to encouraging data and developments that have eased pressure on the ailing rupiah.
Between June and September, the central bank had raised the rate 150 basis points to 7.25 percent to battle inflation and boost the battered currency.
Nine out of 11 analysts in a Reuters poll had expected the central bank to hold its reference rate steady due to lower-than-expected inflation and a surprise August trade surplus.
Bank Indonesia (BI) also kept the deposit facility rate, or FASBI and the lending facility rate at 5.5 percent and 7.25 percent, respectively.
Governor Agus Martowardojo said Indonesia's current account deficit is likely to be 3.4 percent of gross domestic product this year. News that the deficit was a worryingly 4.4 percent in the second quarter put heavy pressure on the rupiah, which has lost 16 percent against the dollar and is Asia's worst-performing currency this year.
Right after Tuesday's announcement, the rupiah was unchanged at 11,525 to the dollar.
The central bank said that the rupiah is trading "in line with fundamentals". Previously, the governor has said it was at a "new equilibrium".
"BI is likely to maintain its wait-and-see approach," Gundy Cahyadi, economist at DBS Bank in Singapore said. "The central bank has responded swiftly to market pressures since May/June by tightening its monetary policy. It has also been more tolerant of the recent rupiah weakness by signalling that it will let the rupiah to trade alongside fundamentals."
Cahyadi said that consumers and businesses have been adjusting to the dollar above the 11,000 rupiah mark "but keeping stability in the USD/IDR trade remains crucial".
He expects BI to keep the benchmark rate at 7.25 percent for the "foreseeable future" but might increase the FASBI another 25 or 50 bps.
BI's decision to pause in a tightening cycle follows a series of welcome developments.
On Monday, the central bank reported that reserves - which fell significantly the first seven months of this year - increased by $2.68 billion during September to $95.68 billion. . September was the second consecutive month in which reserves, nearly $113 billion at the end of 2012, have risen.
Annual inflation in September eased to 8.4 percent from a 4-1/2 year high of 8.79 percent the previous month. On a monthly basis, prices fell 0.35 percent in September.
Also reported last week was a $130 million trade surplus for August, which compared with July's record $2.3 billion surplus and expectations for a deficit of nearly $900 million.
Bank Indonesia was the first Asian central bank to raise its benchmark rate since 2011.
STILL ROOM FOR A HIKE?
Aldian Taloputra, economist at Mandiri Sekuritas in Jakarta, said there's "room for a 25 basis point hike if the rupiah is under pressure and there's a risk from imported inflation."
Robert Prior-Wandesforde of Credit Suisse in Singapore wrote that he has pencilled in a "final" 25 bps hike around the turn of the year, after which there will be rate reductions starting in July 14.
BI hopes to avoid more rate hikes, as they further cut the country's growth rate, which in 2013 is likely to be under 6 percent for the first time in years.
On Tuesday, BI projected that growth in the current quarter will be 5.6 percent from a year earlier, which would be the slowest rate since the last three months of 2009.
Earlier, the central bank twice trimmed its forecast for growth this year - once 6.2-6.6 percent - leaving it now at 5.5-5.9 percent.
The World Bank has cut its 2103 projection to 5.6 percent, as weak demand would thwart robust expansion and slowing investment would be too weak to offset rising imports.
Also, the World Bank has raised its estimate for this year's current account deficit to 3.4 percent of gross domestic product from 2.7 percent previously.
The current account deficit reached 4.4 percent of GDP in the second quarter, but Indonesia has said it would be smaller in the second half.
(Additional reporting by Nilufar Rizki and Andjarsari Paramaditha; Editing by Richard Borsuk)