Indonesia keeps rate on hold as it weighs inflation risks, Fed

[JAKARTA] Indonesia's central bank kept its benchmark interest rate unchanged as expected, seeking to curb inflation risks without derailing an economic recovery.

Governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.75 per cent on Thursday, as forecast by all 28 economists surveyed by Bloomberg. The bank went on a cutting spree last year, lowering rates six times, but has been on hold since the last move in October.

Inflation - which hit a 14-month high of 4.3 per cent last month, mainly due to higher energy costs - is set to remain elevated through June as Indonesians mark Ramadan, the Muslim fasting month when food prices generally spike. The central bank aims to keep inflation in a range of 3 per cent to 5 per cent.

Mr Martowardojo said last week that government-controlled prices - which climbed 9.14 per cent in May from a year earlier and include costs like electricity tariffs - would continue to be a concern for the central bank board.

Bank Indonesia eased policy last year to help support an economy that grew 5 per cent in 2016. The World Bank said in its quarterly economic report on Thursday that growth will probably reach 5.2 per cent this year and 5.3 per cent in 2018.

Tighter US monetary policy is also giving Indonesian policy makers reason to pause, given the potential for foreign outflows from emerging markets and currency volatility. The Federal Reserve raised interest rates on Wednesday for a second time this year and signaled it would continue on its tightening path.

Indonesia's rupiah has been buoyed this year by inflows from a tax amnesty and an improving growth outlook, with the currency gaining 1.4 per cent against the US dollar.

BLOOMBERG