The central bank of Indonesia held its benchmark BI rate steady at 5.75 percent, as expected, saying inflation is expected to remain low and within the bank's target range and economic growth remains sound, despite a slight slowdown from lower exports.
Bank Indonesia, which cut its rate by 25 basis points in February, said the country's external balances had improved, with the current account deficit narrowing to 2.4 percent of Gross Domestic Product in the third quarter and the balance of payments turning to a surplus. International reserves had also risen to $US 110.3 billion, or 6.1 months of imports and external debt services.
Economic growth expanded by an annual 6.2 percent in the third quarter, slightly lower than forecast, but the central bank said "buoyant domestic demand, mainly private consumptions and investment, continued to underpin growth."
Economists had expected strong third quarter Gross Domestic Product growth to convince Bank Indonesia to hold interest rates steady. On a quarterly basis, third quarter GDP rose 3.2 percent.
"Going forward, Indonesia's economic growth is expected to pick up supported by strong consumption and investment," the bank said after a meeting of its governors.
"Exports is also expected to perform better, supported by improvement in some of Indonesia's main trading partner countries, although it remains overshadowed by uncertainty in the global economy," the bank said.
This year Indonesia's economy is expected to expand by 6.3 percent and pick up to 6.3-6.7 percent in 2013, the bank said. Last month it had forecast a 2012 growth range of 6.1-6.5 percent.
Indonesia's inflation rate rose 0.16 percent in October from September for an annual rate of 4.61 percent and the bank said it should remain around the mid-point of its target range of 4.5 percent.
Core inflation was also manageable in October, the bank said, though picked up to 4.59 percent due to higher housing contracts and rental prices.