March 13, 2014 / 11:56 AM / 6 years ago

UPDATE 1-Indonesia keeps rate on hold, trims 2014 growth forecast

* Policy rate held at 7.50 pct for a 4th straight meeting

* 2014 GDP growth forecast cut to 5.5-5.9 pct

* Rupiah has been emerging Asia’s best currency in 2014

By Adriana Nina Kusuma and Rieka Rahadiana

JAKARTA, March 13 (Reuters) - Indonesia’s central bank left its key reference rate steady at 7.50 percent on Thursday, as widely expected, as inflation is manageable and the rupiah has strengthened significantly this year.

Bank Indonesia (BI) said the rate was consistent with its inflation target for the year though it would remain vigilant over inflationary pressure from government-set prices, such as fuel.

The central bank trimmed its 2014 growth forecast. BI spokesman Tirta Segara said it now expects 5.5-5.9 percent, in light of slowing domestic consumption and investment as well as sluggish exports. Its previous estimate was 5.8-6.2 percent.

All 15 analysts in a Reuters poll had forecast the central bank would keep its policy rate at 7.50 percent for a fourth consecutive month. Three analysts saw a rate hike of between 25 to 50 basis points by the end of June.

With the current account deficit falling sharply and the rupiah appreciating, Thursday’s hold “never really looked in doubt”, said Gareth Leather, Asia economist at Capital Economics. He expects the rate to be on hold the rest of 2014.

Between June and November, the central bank raised its benchmark rate by 175 basis points to prop up the rupiah , which plunged more than 20 percent in 2013 on worries over the country’s large current-account deficit and other economic issues.

The deficit has since narrowed, and so far this year the rupiah has been Asia’s strongest currency, gaining nearly 7 percent against the dollar.

After the rate decision, the rupiah remained steady at 11,380 versus the dollar, up 0.4 percent on the day.

While Indonesia’s has stabilised compared with last year, the rates hikes made in 2013 have affected growth. Gross domestic product expanded 5.78 percent in 2013, the slowest full-year growth since 2009.


Inflation, which neared 10 percent in mid-2013 after fuel price hikes, has eased.

In February, the annual inflation rate slowed to 7.75 percent from 8.22 percent a month earlier, but core inflation edged up on higher prices of gold and processed food.

Indonesia reported a record monthly trade surplus of $1.52 billion in December, but then there was a surprise $440 million deficit in January, blamed largely on a ban on exporting unprocessed mineral that took affect on Jan. 12.

The swing back to a trade deficit has made some analysts wonder if the current-account gap could widen again, putting pressure back on the rupiah. Three analysts in the Reuters poll before Thursday’s meeting expected the benchmark rate to rise by the end of June.

Segara of BI said it expects the current-account deficit to be 2.5 percent of GDP this year.

Prior to Thursday’s meeting, economist Tim Condon of ING wrote BI Governor Agues Martowardojo “has made the rupiah a one-way appreciation bet. Its 6.8 percent year-to-date appreciation dwarfs that of any other Asian currency. We recently revised our year-end USD/rupiah forecast to 10,800 from 12,000.” (Additional reporting by Nilufar Rizki and Andjasari Paramaditha; Editing by Jonathan Thatcher and Richard Borsuk)

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