Thursday, September 13, 2012

Indonesia holds rate steady, inflation in line with target

    The central bank of Indonesia kept its benchmark BI interest rate unchanged at 5.75 percent, as expected, saying it was consistent with inflation which is forecast to remain within the bank's target this year and 2013.
    Bank Indonesia, which cut the BI rate by 25 basis points in February, said it would remain vigilant in light of worsening global growth, which "may put pressure on the current account balance" and it would strengthen its coordination with the government to manage domestic demand and improve the current account deficit.
    Last month the central bank and Indonesia's government held a meeting to coordinate policies to tackle the current account deficit, which doubled in the second quarter to 3.1 percent of GDP from 1.5 percent in the first quarter due to weaker exports amidst strong domestic demand.

    Indonesia's inflation rate in August was largely steady at 4.58 percent from July's 4.56 percent. The bank targets annual inflation of 4.5 percent, plus/minus one percentage point.
    Economic growth remains in line with capacity, underpinned by buoyant consumption and investment.
    "Sanguine growth in private consumption is supported by consumer’s confidence on the prospect of Indonesia’s economy, as well as contained inflation. The pace of investment also remains strong, reflecting business confidence on the economic outlook, strong consumption, and supportive investment financing, both from the banking system and Foreign Direct Investment (FDI)," Bank Indonesia said in a statement.
    Indonesia's economy expanded by 6.4 percent in the second quarter from the same 2011 quarter, up from a 6.3 percent rate in the first quarter.
    The bank said exports were also expected to grow modestly "although risks from global economic slowdown will remain a source of concern."


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