UPDATE 2-Indonesia holds key rate steady, sees slightly slower growth

(Adds details, quotes)

* Rate has been kept at 5.75 pct since February

* Domestic demand not as high as expected-cbank

* Growth forecasts for 2012, 2013 trimmed

By Rieka Rahadiana and Adriana Nina Kusuma

JAKARTA, Oct 11 (Reuters) - Indonesia's central bank heldits benchmark rate steady at a record low for an eighthconsecutive month and said the economy was still growing well,though it conceded domestic demand was slowing.

As expected by all 19 economists polled by Reuters, BankIndonesia on Thursday kept the rate

at 5.75 percent.

Most of the economists expect the rate to stay there throughyear-end as inflation has eased and domestic demand hascontinued to drive growth of at least 6 percent a year in spiteof the global economic slowdown.

Earlier on Thursday, South Korea's central bank cut interestrates for the second time in four months to deal with the globalslowdown. Australia and Brazil have also made recent cuts.

Indonesia, which cut rates by 100 basis points in late 2011and early 2012, has not needed to cut them since then to supportgrowth. It has had higher priorities on containing inflation andsupporting the rupiah

, about which concerns wereexacerbated by a string of Indonesian trade deficits betweenApril and July.

The rupiah

is the worst performer among emergingAsian currencies this year, weakening about 5.5 percent againstthe dollar.

Bank Indonesia said after Thursday's rate decision that itwas not worried about the rupiah. Governor Darmin Nasution saidthe current benchmark rate "remains consistent with the low andmanageable inflationary pressures."

The central bank said its board "sees domestic growthremaining good although it is not as high as expected. Economicgrowth in the third quarter is seen at 6.3 percent, lower thaninitial expectations as a result of weaker performance fromexternal sector."

The governor, who last month said Indonesia could grow 6.4percent in 2012, on Thursday instead gave a range of 6.1-6.5percent. He also said that he expects the economy to expand6.3-6.7 percent in 2013, rather than the 6.6 percent he forecastin September.

Despite a bleak global economic outlook, Southeast Asia'sbiggest economy posted annual growth at 6.4 percent in thesecond quarter this year, driven by strong domestic consumption.

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Indonesia rates, inflation

INSTANT VIEWS on BI's decision

TEXT of Bank Indonesia statement

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COUNTRY 'WELL-PLACED'

Daniel Martin, economist at Capital Economics in London,said a rate cut is unlikely until 2014 as GDP growth remainsstrong and "Indonesia is well-placed to withstand the impact ofweaker global demand."

He also said BI may hike rates next year in response torapid credit growth and the worsening current account, but fornow inflationary pressures are "relatively mild."

Easing food prices after the Muslim holiday Eid al-Fitr inAugust had cut annual headline inflation in September to 4.31percent from 4.58 percent the previous month. For 2012,inflation will be comfortably inside Bank Indonesia's target of3.5 to 5.5 percent at year-end.

Chua Hak Bin, economist at Bank of America Merrill Lynch,expects inflation to pick up in early 2013 as electricity priceswill likely be hiked by about 15 percent.

"We are forecasting inflation to average 4.7% in 2012, butto rise to 5.5% in 2013," he said in a research note.

In Chua's view, Bank Indonesia "may pause for a month or twoto gauge whether domestic demand is slowing because of weakerexternal demand."

He expects the central bank to resume tightening in Decemberor January by lifting the deposit facility rate.

While domestic demand is a little less robust than earlierthis year, loan growth remains high.

BI reported on Thursday that August loans were 23.6 percenthigher than a year earlier, compared with the 25.2 percentgrowth in year-on-year credit in July. The bank also said it sawIndonesia's loan growth at 23.25 percent by the end of 2012.

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.

(Editing by Matthew Bigg and Richard Borsuk)

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Keywords: INDONESIA ECONOMY/RATE