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Indonesia holds key rate after 3 hikes as rupiah slump eases

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Indonesia's central bank left its benchmark interest rate unchanged after three hikes in a row helped to stabilize the currency in Southeast Asia's biggest economy.

[JAKARTA] Indonesia's central bank left its benchmark interest rate unchanged after three hikes in a row helped to stabilize the currency in Southeast Asia's biggest economy.

The seven-day reverse repurchase rate was held at 5.25 per cent on Thursday, in line with the forecasts of 25 of the 28 economists surveyed by Bloomberg.

A total of 100 basis points of rate hikes in the past two months, including a bigger-than-expected half-point increase on June 29, have helped restore some stability to financial markets and enabled Governor Perry Warjiyo and his board to pause for now. Investors have pumped more than US$475 million into government bonds this month following weeks of outflows amid a global emerging market sell-off triggered by rising US interest rates.

While the local currency is down almost 6 per cent against the dollar this year and among the worst performers in Asia, the pace of its slide has slowed. The rupiah dropped 2.4 per cent against the dollar between the first rate hike on May 17 and the third one on June 29, and has been stable since then.

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A benign inflation environment and sluggish growth outlook gives policy makers room to hold off on further rate hikes for now. Consumer price growth eased to 3.1 per cent in June, staying within the central bank's 2.5 per cent to 4.5 per cent target band.

The government has trimmed its economic growth forecast for 2018 to 5.2 per cent from 5.4 per cent, while business groups have warned of the impact of a weaker rupiah and higher borrowing costs.

BLOOMBERG