Thursday, July 12, 2012

Indonesia holds key rate steady at 5.75%

    Indonesia's central bank kept its benchmark BI rate unchanged at 5.75 percent, as expected, but acknowledged that slowing global growth was starting to weaken the country's exports and this would slice into economic growth.
    "The Board of Governors remains vigilant on the weaker global economic condition which is still overshadowed by high uncertainty," the bank said in a statement.
    Bank Indonesia said the economy was estimated to grow 6.3 percent in the third quarter and then grow between 6.1-6.5 percent in 2012 and 6.3-6.7 percent in 2013. Indonesia's economy expanded by 6.5 percent in 2011 and 6.3 percent in the first quarter and growth would mainly be supported by strong domestic demand as consumption and investment remained high.

    A resolution of the problems in the euro area are expected to take a long time and the European economy is first expected to recover in 2013. It also said that the U.S. economy was vulnerable as it tackles its own fiscal issues.
"Those conditions will have an impact on economic growth in Asian countries, such as China and India, which are the main trading partners of Indonesia. In addition, global commodity prices, including oil prices, continue to decline as global demand worsen, and followed by declining global inflation," the bank said.

    The bank's BI rate, which has been steady since February, is consistent with forecast inflation, which is expected to remain around the 4.5 percent target in 2012 and 2013. In the second quarter, inflation was 4.53 percent on an annual basis.
    A decline in Indonesia's exports and continued strong imports could affect the exchange rate and the central bank said it would strengthen exchange rate management to ensure the adjustment is orderly.
    It said there was continued depreciation pressure on the rupiah in the second quarter, with the currency easing 2.27 percent from the previous quarter to 9.277 per U.S. dollar.



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