Last updated at 5:32 PM. Sunday 21 March 2010

Go to comments February 04, 2010

Inflationary pressure does not yet require a rate hike, Bank Indonesia has decided. (JG Photo/Safir Makki)

Inflationary pressure does not yet require a rate hike, Bank Indonesia has decided. (JG Photo/Safir Makki)

Bank Indonesia Keeps Hand Off Key Rate To Protect Growth, Despite Inflation

Indonesia's central bank kept its policy interest rate unchanged for a sixth straight month, judging that inflation was not yet enough of a risk to warrant higher borrowing costs.

Bank Indonesia maintained its benchmark interest rate at 6.5 percent, the lowest level since the measure was introduced in July 2005, according to a statement released on Thursday. All 23 economists in a Bloomberg survey predicted the decision. Twelve of 17 analysts surveyed expect the rate to rise by the end of June.

Policy makers throughout Asia are taking steps to withdraw monetary stimulus as inflation accelerates amid an economic recovery. In Indonesia, where consumer prices are rising at the fastest pace since May, the central bank may keep interest rates unchanged in the next few months to protect growth, said economists, including Juniman at PT Bank Internasional Indonesia.

“Indonesia’s focus now is on growth rather than inflation,” Juniman said before the decision. “The central bank may start raising borrowing costs in the third quarter as inflation may accelerate, stemming from high global commodity prices.”

Australia and Vietnam raised interest rates late last year and China and India have asked lenders to set aside more money as reserves to cool asset bubbles and prices. The Philippines last week increased its so-called rediscounting rate, which it charges lenders for borrowing money from the central bank.

Australia’s central bank unexpectedly paused in raising interest rates this week as Governor Glenn Stevens opted to support the economy’s acceleration and stem inflation later. The Reserve Bank of Australia kept the overnight cash rate target at 3.75 percent after three increases, it said on Tuesday.

Inflation in Indonesia’s $514 billion economy accelerated to 3.72 percent in January amid higher rice and commodity prices. That compares with the Philippines’ 4.4 percent rate and India’s more than 10 percent increase in consumer prices in December. Vietnam’s inflation rate was 7.6 percent last month.

Indonesia’s inflation is forecast by the central bank to accelerate to a range of 4 percent to 6 percent this year from 2.78 percent in 2009, Senior Deputy Governor Darmin Nasution said on Jan. 22.

“The inflation does not warrant” an increase in the policy rate, Helmi Arman, an economist at PT Bank Danamon Indonesia, said.

Low interest rates and sustained economic growth have benefited Indonesian companies such as PT Bank Mandiri and PT Perusahaan Perkebunan London Sumatra Indonesia. Net income at Jakarta-based Bank Mandiri may have risen to about 6 trillion rupiah ($640.8 million) in 2009, president director Agus Martowardojo said in Jakarta on Jan. 22.

PT Astra Sedaya Finance, a unit of PT Astra International, plans to sell as much as 1 trillion rupiah of bonds next month to expand lending, the company said in a brief prospectus published in Bisnis Indonesia on Feb. 1.

Indonesia’s central bank forecast the nation’s 121 commercial lenders will accelerate credit growth to between 17 percent and 20 percent this year. Loan growth was 10.7 percent in 2009. The economy may expand 5.2 percent this year and 6 percent in 2011, Nasution said on Jan. 22.

Indonesia’s economy may have expanded 4.5 percent in the fourth quarter from a year earlier, Rusman Heriawan, chairman of the country’s statistics office, said on Wednesday.

“Bank Indonesia will stand pat to support credit growth and domestic-demand growth,” Prakriti Sofat, a regional economist at Barclays Capital in Singapore, said in a report this week.



Bloomberg



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