Nov. 4 (Bloomberg) -- Indonesia’s central bank may refrain from raising interest rates, judging that inflation isn’t yet enough of a risk to warrant higher borrowing costs.

Bank Indonesia will maintain its reference rate at 6.5 percent, the lowest level since the measure was introduced in May 2005, according to all 24 economists in a Bloomberg News survey. The decision is due after noon in Jakarta today.

Indonesia’s inflation unexpectedly slowed to a nine-year low of 2.57 percent in October, giving policy makers more time before they follow other Asian central banks in exiting monetary stimulus. Consumer prices may start to climb faster in the coming months, according to economists, forcing Bank Indonesia to raise borrowing costs in the first quarter.

“Bank Indonesia is almost certain to keep interest rates on hold while signaling that it expects to start tightening soon,” said James Lord, an economist at Capital Economics Ltd. in London. “We expect inflation to accelerate to around 6 percent in 2010.”

The Indonesian rupiah rose 0.5 percent to 9,590 against the dollar at 8:44 a.m. in Jakarta today. The 11 percent note maturing December 2012 dropped 3 basis points, or 0.03 percentage point, to 8.96 percent yesterday, near the lowest in a week, according to prices from the Inter Dealer Market Association.

Australia Rates

The Reserve Bank of Australia yesterday raised interest rates for the second time in four weeks, citing “stronger than expected” economic conditions for its decision to raise the overnight cash rate target by a quarter point to 3.5 percent. Australia last month became the first among Group of 20 nations to increase borrowing costs since the height of the global credit squeeze.

The Reserve Bank of India in its Oct. 27 monetary policy statement said the “unconventional” steps taken during the global slump can now be reversed. Governor Duvvuri Subbarao ordered lenders to keep more cash in government bonds, increasing the central bank’s statutory liquidity ratio to 25 percent from 24 percent.

Indonesia’s central bank stopped cutting rates in August after slashing borrowing costs for nine straight months to help shield Southeast Asia’s largest economy from the worst global recession since the 1930s.

Deputy Governor Hartadi Sarwono on Oct. 22 said that Bank Indonesia’s scope to lower rates has become “limited,” indicating that borrowing cost are now more likely to go up rather than down.

Inflation Forecast

Inflation may accelerate to between 4 percent and 6 percent next year compared with this year’s estimate of 3.5 percent to 5.5 percent, the central bank said last month.

Indonesia’s $514 billion economy is forecast to expand 5.5 percent next year from an estimated 4.3 percent this year, driven by consumer demand, according to the central bank. Indonesian President Susilo Bambang Yudhoyono said last week his government aims to achieve economic growth of 7 percent by the end of his second five-year term in 2014.

Car sales in Indonesia may reach 550,000 to 600,000 next year from between 460,000 and 475,000 vehicles in 2009, PT Toyota Astra Motor’s marketing director Joko Trisanyoto said in Bandung on Oct. 22.

“Having weathered the global crisis well, Indonesia looks on course to be one of the fastest-growing economies in the world in 2010,” said Capital Economics’ Lord.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@blomberg.net

Last Updated: November 3, 2009 20:54 EST