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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 held its benchmark rate steady at a record low for an eighth consecutive 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, Bank Indonesia on Thursday kept the rate

at 5.75 percent.

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

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

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

, about which concerns were exacerbated by a string of Indonesian trade deficits between April and July.

The rupiah

is the worst performer among emerging Asian currencies this year, weakening about 5.5 percent against the dollar.

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

The central bank said its board "sees domestic growth remaining good although it is not as high as expected. Economic growth in the third quarter is seen at 6.3 percent, lower than initial expectations as a result of weaker performance from external sector."

The governor, who last month said Indonesia could grow 6.4 percent in 2012, on Thursday instead gave a range of 6.1-6.5 percent. He also said that he expects the economy to expand 6.3-6.7 percent in 2013, rather than the 6.6 percent he forecast in September.

Despite a bleak global economic outlook, Southeast Asia's biggest economy posted annual growth at 6.4 percent in the second 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 remains strong and "Indonesia is well-placed to withstand the impact of weaker global demand."

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

Easing food prices after the Muslim holiday Eid al-Fitr in August had cut annual headline inflation in September to 4.31 percent from 4.58 percent the previous month. For 2012, inflation will be comfortably inside Bank Indonesia's target of 3.5 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 prices will likely be hiked by about 15 percent.

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

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

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

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

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

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.

(Editing by Matthew Bigg and Richard Borsuk)

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

Keywords: INDONESIA ECONOMY/RATE