Indonesia Holds Benchmark Rate to Shield Weakening Currency

Indonesia held its benchmark interest rate for an eighth month in October as a declining currency reduced scope for the central bank to ease monetary policy even after inflation slowed.

Bank Indonesia Governor Darmin Nasution and his board kept the reference rate at a record-low 5.75 percent, the central bank said in a statement in Jakarta today. The decision was predicted by all 23 economists surveyed by Bloomberg News.

Central banks are stepping up efforts to protect the global recovery, with the U.S. expanding monetary easing, the Bank of Japan boosting its asset purchases and Brazil and the Bank of Korea cutting borrowing costs. Indonesian policy makers have avoided adding to a February interest-rate cut to prevent further capital outflows that have weakened the rupiah.

”As inflation is benign, holding the rate is the right choice at this current condition,” Felix Sindhunata, an economist at PT Henan Putihrai in Jakarta, said before the decision. “The BI also wants to guard the rupiah.”

The rupiah fell 0.4 percent to 9,636 rupiah per dollar as of 1:28 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It has lost about 6 percent this year, the worst performance among Asia’s 11 most-actively traded currencies tracked by Bloomberg.

Consumer price gains unexpectedly eased 4.31 percent in September from a year earlier, the slowest pace in six months. Bank Indonesia has an inflation target rate of about 3.5 percent to 5.5 percent this year and next.

Exports Fall

Indonesian exports fell 24.3 percent in August from a year earlier, after a revised 7.6 percent decline the previous month, the worst contraction since at least June 2009, according to data compiled by Bloomberg. Imports slid 8 percent for a trade balance of $249 million, the first surplus since March.

Gross domestic product rose 6.37 percent in the three months through June from a year earlier, more than a revised 6.32 percent gain in the first quarter. The country’s growth is the fastest among the Group of 20 nations after China, as President Susilo Bambang Yudhoyono boosts spending and invests in ports, roads and railways.

The World Bank lowered its economic growth prediction in developing East Asia, which excludes Japan and India, to 7.2 percent from its forecast in May of 7.6 percent. That is the slowest pace since 2001, according to a report on Oct. 8.

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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