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Economists Expect Bank Indonesia to Maintain 6% Rate
Jakarta Globe | February 08, 2012

Bank Indonesia is holding talks with the country’s lenders, the Finance Ministry and the State Enterprises Ministry on reducing commercial lending rates. (Antara Photo) Bank Indonesia is holding talks with the country’s lenders, the Finance Ministry and the State Enterprises Ministry on reducing commercial lending rates. (Antara Photo)
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The central bank will likely keep its benchmark interest rate unchanged on Thursday amid a bleak outlook stemming from the euro zone debt crisis and a weakening global economy, even as Indonesia’s inflation rate slows.

Bank Indonesia will likely maintain its policy rate at 6 percent in its monthly policy-setting meeting, according to the median forecast of 15 economists in a Bloomberg News survey. The central bank cut the rate by a total of 75 basis points in October and November, and has kept it at 6 percent — the lowest level since it was introduced in 2005 — over the past two months.

Economists said that slowing inflation would not provide a case for Bank Indonesia to make a move on monetary policy.

“We continue to believe that Bank Indonesia will keep the policy rate unchanged at 6 percent given manageable inflation,” Singapore-based Prakriti Sofat of Barclays Capital said in a report sent to the Jakarta Globe on Tuesday.

Bank Indonesia forecast inflation in the range of 3.5 percent to 5.5 percent this year. The January inflation rate eased to 3.65 percent year-on-year from 3.79 percent in December, the Central Statistics Agency (BPS) reported on Feb. 1.

Core inflation, which excludes volatile food and energy prices, eased to 4.29 percent in January from 4.34 percent in December.

The central bank has said that it will anchor its monetary policy to the core inflation rate.

Other central banks in the region have not made moves on monetary policy recently. The Australian central bank, Reserve Bank of Australia, kept the interest rate at 4.25 percent on Tuesday. It reduced the rate by half a percentage point late last year as inflation slowed.

Bank Negara Malaysia, that country’s central bank, has kept its benchmark rate unchanged at 3 percent since May 2011.

Bank Indonesia lowered its forecast for the nation’s 2012 economic growth to 6.3 percent from an initial 6.7 percent estimate.

The $830 billion economy expanded by 6.5 percent last year, the fastest pace since 1996, helped by strong consumer demand and investment.

Earlier this week, the Asian Development Bank warned that Indonesia and other countries in Southeast Asia face a possible rise in food prices, which might stoke inflation.

Changyong Rhee, chief economist at the Manila-based lender, said on Monday that global financial turmoil might increase the volatility of prices for food and other commodities.

Rising inflation is typically countered by central banks through an interest rate increase.