Indonesia's central bank held its benchmark reference rate steady at 5.75 percent, as expected, saying the country's economy continues to be robust and should expand this year and next while inflation remains low and under control.
Bank Indonesia (BI), which cut its key rate by 25 basis points in 2012, said sluggish global economic growth has kept inflationary pressures at bay, but "going forward, global economic growth is forecast to improve in 2013 and 2014 and some rebound is expected for global commodity prices as well."
In 2012 Indonesia's economy expanded by 6.3 percent and is forecast to expand by 6.3-6.8 percent in 2013 and by 6.7-7.2 percent in 2014, with growth underpinned by "buoyant private consumption and strong investment, as well as some improvements in export performance," the BI said.
Last month the BI also said it expected stronger growth this year but it has now extended this forecast to 2014. In 2011 Indonesia's economy expanded by 6.5 percent.
Indonesia's headline inflation rate was steady in December at 4.30 percent from November's 4.32 percent, and the BI said core inflation was also steady, helped by the mix of macroprudential and monetary policy that is geared toward managing inflationary pressures from the demand side, imported inflation and inflation expectations.
"Going forward, Bank Indonesia is confident that inflation will remain well under control in the target range of 4.5%+1% in 2013 and 2014," the bank said in a statement.
Last month the bank said core inflation could reach 4.7 percent this year, but remain below the 5.0 percent level that would raise alarm at the bank.
The central bank also said its future policy would be directed toward managing domestic demand in line with efforts to maintain the external balance and this would be focused on a policy mix directed toward five pillars.
Interest rate policy will be aimed at keeping inflation forecasts within the target range, exchange rate policy will be aimed at maintaining a stable rupiah, macroprudential policy will be aimed at financial stability along with internal and external balances, the communication's strategy will be aimed at managing inflation expectations and lastly, policy coordination between the bank and the government will be strengthened to support macroeconomic management.