×

INSTANT VIEW 2-Indonesia cbank holds rate at 5.75 pct

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

All 19 economists polled by Reuters forecast Bank Indonesia (BI) to keep the rate unchanged and 13 of them said the bank would hold rates for the rest of the year.

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

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

Governor Darmin Nasution said last month the central bank sees 6.4 percent economic growth for this year, compared with 6.5 percent in 2011. On Thursday, he gave ranges for growth for 2012 and 2013.

KEY POINTS

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

- BI sees current account deficit at 2.2 pct of GDP at end-2012, Q3 deficit lower than in Q2

- BI says not worried about weakening of rupiah

- BI says loan growth at 23.25 percent pct at end-2012, August loan growth at 23.6 percent y/y against 25.20 in July

Graphic for Indonesia inflation, rates: COMMENTARY DANIEL MARTIN, ECONOMIST, CAPITAL ECONOMICS, LONDON

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

"Indeed, there is a chance that BI may hike rates next year in response to rapid credit growth and the worsening current account. 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 likely to 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 on hold for the remainder of this year and next. The consensus is for interest rates to remain on hold this year, with around half of analysts expecting rate hikes in 2013."

PRAKRITI SOFAT, REGIONAL ECONOMIST, BARCLAYS, SINGAPORE

"We expect BI to keep the policy rate and the interest rate corridor unchanged. Key will be comments from BI whether the weakness in external demand is spilling over into domestic demand. Note in all recent commentary BI has indicated that consumption and investment remain buoyant."

RADHIKA RAO, ECONOMIST, FORECAST , SINGAPORE

"Much of the BI post-policy commentary was directed at explaining recent macro developments that belied the need for an imminent rate hike. We concur given manageable inflation outlook, small trade surplus in August (albeit influenced by seasonal factors) and thereby likelihood of improvement in the current account deficit.

"However the last two factors could reverse out, headed into end-year and euro zone growth concerns, plus US fiscal cliff induced volatility in the capital flows, fanning funding fears. There is limited scope for a rate hike before December, with an increase in the lower bound of the FASBI rate likely the preferred step forward."

MARKET REACTION

The rupiah was broadly unchanged after the central bank's decision, and for the day was 0.2 percent lower 9,065 per dollar.

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

CONTEXT:

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

Indonesia posted a slight trade surplus in August though exports and imports recorded the biggest annual fall in three years, pressuring balance of payment and the currency.

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

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

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

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

(Reporting by Rieka Rahadiana, Adriana Nina Kusuma and Andjarsari Paramaditha; Editing by Sanjeev Miglani and Matthew Bigg)

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

Keywords: INDONESIA ECONOMY/RATE