Indonesia Holds Benchmark Rate at 5.75%
Indonesia’s central bank left its overnight benchmark rate unchanged on Thursday at 5.75 percent amid rising inflation and a weak rupiah.
Inflation rose to 4.53 percent in June year-on-year from 4.45 percent in May, but remained within the target range set by Bank Indonesia (BI) of 3.5 percent and 5.5 percent.
“BI decided to keep its rate at 5.75 percent. In our view, this rate is consistent with current low inflation, which is still within our range,” said governor Darmin Nasution.
Despite concerns that the global slowdown would further weaken demand for Indonesian exports, the bank chose not to slash the rate as the rupiah is weak, having fallen more than nine percent in the last 12 months.
BI said the slowdown had already begun to affect Indonesian trade.
“The weaker global economy is starting to have an impact on Indonesia, with external growth lower than expected,” Nasution said, adding that imports remained high in line with strong domestic demand.
“We are also affected by a slowdown in Asian countries, such as China and India, which are trading partners with Indonesia.”
The bank forecast economic growth at 6.1 to 6.5 percent for 2012, and 6.3 to 6.7 percent in 2013.
But the World Bank, in its economic quarterly report released Thursday, made more conservative forecasts of six percent in 2012 and 6.4 percent in 2013 in the absence of another severe global downturn.