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Indonesia Holds Interest Rate a Sixth Month as Growth Quickens

Indonesia kept its benchmark interest rate unchanged for a sixth straight month as faster economic expansion and persistent inflationary pressure reduced the central bank’s scope to resume monetary easing.

Bank Indonesia Governor Darmin Nasution and his board kept the reference rate unchanged at a record-low 5.75 percent, the central bank said in a statement in Jakarta today. The decision was predicted by all but one of 26 economists surveyed by Bloomberg News. One expected a 0.25 percentage-point reduction.

Growth in Southeast Asia’s largest economy unexpectedly accelerated last quarter as rising investments helped the nation withstand Europe’s sovereign-debt crisis, which has hurt more export-dependent neighbors from Singapore to Taiwan. Indonesia has refrained from adding to a February rate cut even as policy makers from China to the Philippines lowered borrowing costs, as its currency weakened and inflation held above 4 percent.

“There’s no urgent need to lower interest rates this month,” David Sumual, an economist at PT Bank Central Asia in Jakarta, said before the decision. “Cutting rates can trigger asset bubbles in certain sectors, and the current rate is adequate to support the economy amid the global turmoil that won’t be resolved in the short term.”

The rupiah rose 0.1 percent to 9,480 rupiah per dollar as of 11:30 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It has dropped for six months, its longest losing streak since 1998, and is the worst performer this year among the 11 most traded Asian currencies tracked by Bloomberg.

Growth Quickens

Indonesia’s gross domestic product rose 6.37 percent in the three months ended June 30 from a year earlier, more than a revised 6.32 percent gain for the first quarter. The country’s growth is the fastest among Group of 20 nations after China, as President Susilo Bambang Yudhoyono boosts investment more than a decade after the Asian financial crisis that forced the nation to seek an International Monetary Fund bailout.

Still, easing exports led to a June trade deficit of $1.32 billion, the widest in at least five years. Exports fell 16.4 percent in June from a year earlier, while imports rose 10.7 percent.

The crisis in Europe and growing imports have put pressure on the rupiah, Bank Indonesia said last month, adding it will develop foreign-exchange monetary instruments to support stabilization of the currency to ensure it reflects fundamentals and is in line with regional counterparts.

Bank Indonesia will focus on maintaining the external balance for rupiah stability and inflation management, it said July 12. The central bank will strengthen rupiah management, supported by further measures in monetary policy and foreign- exchange market deepening, it said.

To contact the reporters on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Hidayat Setiaji in Jakarta at hsetiaji@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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