Wires

INSTANT VIEW 1-Indonesia cbank holds rate at 5.75 pct

Share

JAKARTA, Sept 13 (Reuters) - Indonesia's central bank heldits benchmark rate on Thursday at a record low 5.75 percent foran eighth consecutive month, as forecast, as the countrymaintained strong growth despite a global economic slowdown.

All 19 economists polled by Reuters forecast the rate wouldbe kept at 5.75 percent, and 13 of them said Bank Indonesia(BI)the bank would hold rates for the rest of the year.

Some economists expect the bank to tighten monetary policyby year-end by lifting its deposit facility rate by 25 to 50basis points from the current 4 percent level. This could aidthe rupiah , which has weakened about 5.5 percent thisyear against the dollar.

A higher deposit facility rate, as well as other possiblemeasures in BI's toolkit, would be aimed at trying to stabilisethe currency and narrow the current account deficit.

Governor Darmin Nasution said last month the central banksees 6.4 percent economic growth for this year, compared with6.5 percent in 2011.

KEY POINTS

- Cbank holds rate, sees 2012 economic growth of 6.1-6.5percent, and 2013 growth at 6.3-6.7 percent

- Cbank sees current account deficit at 2.2 pct of GDP atend-2012

- Cbank says not worried about weakening of rupiah - BI says loan growth at 23.25 percent pct at end-2012 Graphic for Indonesia inflation, rates: COMMENTARY DANIEL MARTIN, ECONOMIST, CAPITAL ECONOMICS, LONDON

"Today's decision was no great surprise. Further interestrate cuts in Indonesia look unlikely. GDP growth remains strong,with the pace of expansion accelerating to 6.4% y/y in Q2. Asone of the least trade-dependent economies in the region,Indonesia is well-placed to withstand the impact of weakerglobal demand.

"Indeed, there is a chance that BI may hike rates next yearin response to rapid credit growth and the worsening currentaccount. However, inflationary pressures are relatively mild,with the y/y rate in September in the middle of BI's 3.5-5.5%target range. Moreover, even though headline inflation is likelyto accelerate in the coming months due to rising food costs,core inflation looks set to remain low.

"Overall, we expect interest rates in Indonesia to remain onhold for the remainder of this year and next. The consensus isfor interest rates to remain on hold this year, with around halfof analysts expecting rate hikes in 2013."

PRAKRITI SOFAT, REGIONAL ECONOMIST, BARCLAYS, SINGAPORE

"We expect BI to keep the policy rate and the interest ratecorridor unchanged. Key will be comments from BI whether theweakness in external demand is spilling over into domesticdemand. Note in all recent commentary BI has indicated thatconsumption and investment remain buoyant."

MARKET REACTION

The rupiah spot indicative price was unchangedafter the central bank's decision, at 0.2 percent down to 9,065per dollar.

Jakarta stocks .JKSE> extended modest early losses to 0.4percent after the central bank announcement. But they have stillgained more than 11 percent this year as the economy has largelyresisted the global downdraft

BACKGROUND: CONTEXT:

Bank Indonesia last changed the benchmark rate in February,trimming 25 basis points to follow a 25 bps cut last October anda 50 bps cut in November.

Indonesia posted a slight trade surplus in August thoughexports and imports recorded the biggest annual fall in threeyears, pressuring balance of payment and the currency.

The rupiah has fallen about 5.5 percent against the dollarin 2012, the worst performer in the region.

Retail sales rose at a slower pace in August but stillclocked 11.4 percent growth from a year earlier, while thecentral bank's consumer confidence index rose in September.

Easing food prices after Eid al-Fitr reduced annual headlineinflation from 4.58 percent in August to 4.31 percent inSeptember. There should be no problem keeping inflation withinBank Indonesia's target of 3.5 to 5.5 percent at year-end.

LINKS: - BI rate details .......................... - Central bank website ...............

(Reporting by Rieka Rahadiana and Adriana Nina Kusuma; Editingby Sanjeev Miglani and Matthew Bigg)

((rieka.rahadiana@thomsonreuters.com)(+6221 3199 7170)(ReutersMessaging: rieka.rahadiana.thomsonreuters.com@reuters.net))

Keywords: INDONESIA ECONOMY/RATE