Lower inflation leads Indonesian c bank refrains from raising rate

Indonesian central bank kept its benchmark interest rate steady at 6.5 percent on Tuesday as inflation rate had not strong enough to push the authorities to raise the lending rate, the bank said in a statement here.

The decision was inline with expectation of seven analysts surveyed by Xinhua.

The bank needs to keep the rate at the level to protect the economic growth in the Southeast Asia's largest economy amid strong rupiah value against the U.S. dollar.

"The result of evaluation on the economic performance at the first quarter 2010 and the prospect of economy in the future, indicates that the interest rate at the level is still consistence with the achievement of inflation target in 2010 and 2011 of 5 plus minus 1 percent," the bank said in the statement.

Indonesia's inflation in March reached 3.43 percent, lower than in February's 3.81 percent, the National Statistic Bureau announced on April 1.

"The bank governor council considers that the rate is still conducive for the effort to boost economic recovery, maintain financial stability and push the intermediation of banking. For the future, the monetary policy will be consistently directed to manage the inflation rate at low level the same time with the effort to accelerate economic recovery," the bank said.

Economist from Danareksa Purbaya Yudhi Sadewa said that the rate may keep unchanged up to the end of this year, even as many market analysts forecast that the rate hike may be started in June.

Sadewa said that the bank would not raise the rate as long as the inflation rate not to exceed the bank target of 6 percent this year.

"We forecast that there will be no triggers that can make the inflation pressure to be more than 6 percent by year end," he told Xinhua on Tuesday.

He dismissed concern that the global oil price may surge, saying that the current price of at around 80 U.S. dollars, which has been stand for months, may decrease.

The central bank has refrained from raising the rate since August last year. The bank had cut the rate by 3 basis points in a ninth-straight months since December 2008 to shield the country's economy from the global recession.

Sadewa said that the central bank needed to keep the rate steady at 6.5 percent to push the economic growth. On that level he said that it was expected banks can reduce their interest of credit from over 14 percent to around 11 percent.

Indonesia recorded 5.4 percent economic growth at the last quarter of last year and registered 4.5 percent gross domestic product in the year. The country's economy is seen to accelerate at 5.5 percent his year. Indonesia's exports are seen to rebound at more than 8.5 percent and foreign direct investment at more over 20 percent.

The analyst said that the current interest rate level of 6.5 percent was still supportive for the rupiah value which now is at the level of 9,045 against one U.S. dollar.

Source: Xinhua