Indonesia Holds Key Rate as Price Pressures-to-Imports Ease

Indonesia kept interest rates unchanged for a second straight meeting, extending a pause in monetary tightening as inflation held steady and imports fell.

The central bank maintained the reference rate at 7.5 percent, it said in Jakarta today, a decision predicted by 15 of 18 economists surveyed by Bloomberg News. The rest expected a 25 basis-point increase. It kept the deposit facility rate at 5.75 percent.

Governor Agus Martowardojo embarked on the country’s most aggressive rate-tightening cycle in eight years within a month of taking the helm in May, leading to slower expansion and reduced imports. The central bank will keep a tight bias this year, Senior Deputy Governor Mirza Adityaswara said today, even as some economists scaled back expectations of rate increases.

“We now acknowledge the risk of BI hiking the rates less aggressively than our projection given that the economy’s fundamentals and local market sentiments have improved,” said Eric Alexander Sugandi, an economist at Standard Chartered Plc in Jakarta.

Indonesia posted its biggest trade surplus in 20 months in November, according to data from the statistics department, which cited the impact of monetary policy tightening and government curbs on imports of some commodities. The central bank has raised its benchmark by 1.75 percentage points since early June.

Rupiah Slides

The moves failed to halt a slide in the currency, Asia’s worst performer in 2013. The rupiah plunged 21 percent against the dollar last year, the biggest drop since 2000. It rose 0.4 percent to 12,190 as of 5:40 p.m. in Jakarta, prices compiled by Bloomberg from local banks show.

The central bank said today it has no target for the rupiah, and the weakening is in line with regional currencies.

“The biggest change in recent months seems to be that BI has stopped panicking over the rupiah,” said Gareth Leather, a London-based Asia economist at Capital Economics Ltd. “Although the rupiah has continued to weaken over the past month, the speed of the decline has slowed sharply and BI has not been working to prop it up.”

Inflation was little changed in December at 8.38 percent, and Bank Indonesia forecasts the pace of price gains to moderate to between 3.5 percent and 5.5 percent this year.

No Hurry

“Bank Indonesia is likely not in a hurry to tighten policy again” after posting a trade surplus for two months and with stable inflation, said David Sumual, chief economist at PT Bank Central Asia in Jakarta. “The decision might be postponed to March or even to April.”

The economy may have grown 5.7 percent in 2013, and the expansion this year may be at the lower end of the central bank’s target range of 5.8 percent to 6.2 percent, Martowardojo told reporters after the rate meeting today. The policy focus is on stabilizing the economy, he said.

“With inflation set to fall back sharply later this year, the current-account deficit narrowing and indications BI is becoming more worried about growth, further monetary policy tightening looks unlikely,” Leather said.

PT Pertamina said this week it will raise the price of gas canisters used for cooking by less than it has initially announced after the government asked the state-owned oil company to review the increase. The country holds parliamentary and presidential elections this year.

Bond Sale

Indonesia said yesterday it raised $4 billion from a sale of dollar-denominated bonds as it sought to draw global capital and buoy the rupiah. Its dollar debt is the worst performer over the past 12 months among 11 Asian emerging markets tracked by HSBC Holdings Plc.

The current-account gap, at a record 4.4 percent of gross domestic product in the second quarter of 2013, may have narrowed to below 3 percent in the final three months of the year, the central bank said today. The deficit may stay below 3 percent of GDP this year from an estimated 3.5 percent in 2013, it said.

Eight of 11 economists had forecast no change in the rate Bank Indonesia pays lenders on overnight deposits, also known as the Fasbi. The others predicted a 25 basis-point increase.

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