Bank Indonesia holds key rates before Jokowi's fuel-price move

Jakarta

INDONESIA'S central bank has kept benchmark borrowing costs unchanged in its first meeting since President Joko Widodo took office, refraining from tightening policy before the government raises fuel prices.

Bank Indonesia governor Agus Martowardojo and his board left the reference rate at 7.5 per cent, the central bank said in Jakarta on Thursday, staying on hold for a 12th straight month following 1.75 percentage points of increases in 2013.

"There's really not much more room for them to hike further," Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc, said before the rate decision. "Unless we see a very substantial fuel-price hike, I think Bank Indonesia will probably stay where it is for a while." The monetary authority also kept the deposit facility rate unchanged at 5.75 per cent.

The president, popularly known as Jokowi, inherited an economy growing at the slowest pace in five years and is seeking to free up fiscal space for infrastructure spending and support for the poor. Inflation has cooled to 4.83 per cent in October from 8.2 per cent in January.

Gross domestic product rose 5.01 per cent in the three months ended Sept 30 from a year earlier - the least since the same period in 2009, based on previously reported data compiled by Bloomberg.

Mr Joko has indicated he will fulfil a campaign pledge to cut energy subsidies that have strained the state budget and the current account. The government will raise fuel prices this month but hasn't decided on the magnitude of the change, Coordinating Minister for Economic Affairs Sofyan Djalil said last week. The government is rethinking the timing and size of a rise in subsidised fuel prices following a sharp drop in global oil prices, the vice-president's office said.

President Joko was poised this month to raise prices by as much as US$0.25 per litre, but a 7 per cent decline in US crude prices since his Oct 20 inauguration has eased the pressure to act quickly.

Mr Joko has promised to confront a ballooning US$23 billion fuel subsidy bill, the main factor behind the budget and current account deficits. "How much the hike will be is the crucial part, especially since there has been a fall in the global oil price. That is why the price is still being discussed," said Husain Abdullah, Vice- President Jusuf Kalla's spokesman.

Indonesia's subsidised fuel prices are among the cheapest in the world with gasoline costing 6,500 rupiah (S$0.69) a litre and diesel 5,500 rupiah. BLOOMBERG, REUTERS