Indonesia holds rate steady, risk to inflation from weather

    Indonesia's central bank held its BI rate steady at 5.75 percent, as expected, saying inflation is expected to remain subdued and in line with the bank's target for this year and next, the economy is still performing strongly and the exchange rate is stable.
    Bank Indonesia (BI), which cut its rate by 25 basis points in 2012, said consumer price inflation rose to an annual rate of 4.57 percent in January from December's 4.3 percent due to rains that disrupted food production and supply. But core inflation remained stable at 4.32 percent as inflationary expectations remained under control.
    "Looking ahead, there are a number of risk factors that can increase inflationary pressures that need to be observed, among those are weather factors that can interfere with the production and distribution of food and increases in some administered prices," the bank said after a meeting of its board of governors.
    The bank targets inflation of 4.5 percent, plus/minus one percentage point in 2013 and 2014.
    Indonesia's economy slowed slightly in the fourth quarter with the annual growth rate easing to 6.11 percent from the third quarter's 6.17 percent due to slightly lower consumption and investment.
   "On the other hand, exports began to improve with the economic recovery is some major trading partners, such as China," the bank said.

    For 2013 the BI maintained its growth forecast 6.3-6.8 percent and first quarter growth of Gross Domestic Product is forecast at 6.2 percent.
    In 2012 Indonesia's GDP expanded by 6.23 percent, up from 2011's 6.5 percent. Last month the BI forecast growth of 6.7-7.2 percent in 2014.
    Indonesia's balance of payments showed a higher current account deficit than forecast due to a declining trade surplus and a rising deficit in non-oil and gas trades.
    "Looking ahead, the current account in the first quarter of 2013 is forecast to improve, primarily due to improved export performance in line with the economic recovery of the major trading partners such as China and the U.S." the BI said.
    During January the Indonesian rupiah depreciated by 0.22 percent to 9.654 against the U.S. dollar and the bank said it was encouraging a reference exchange rate on the domestic spot market that should boost liquidity and the efficiency of the foreign exchange market and thus deepen the domestic financial market.

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