Bank Indonesia keeps BI rate steady at 5¾% as inflation stays subdued

By Toni Weeks

San Diego, Oct. 11 - Bank Indonesia announced that its board of governors decided to maintain the BI rate at 5¾% at its meeting on Thursday.

The bank said that the current policy rate is considered consistent with the inflation forecast, which is expected to remain low and contained within its target range of 4½% plus or minus 100 basis points for 2012 and 2013.

Inflation was subdued and stayed contained at a low level in September, with month-to-month CPI inflation recorded at 0.01% and year-over-year CPI inflation at 4.31%. Core inflation was 4.12% for September.

The board also reported that the rupiah depreciated in August by 0.37% month to month to Rp 9,570 to the dollar on a point-to-point basis. Pressure on the rupiah, which was mainly associated with strong imports and the related high demand for foreign currency, was subdued, as measures to boost global economy and the prospects of Indonesia's economy attracted more capital inflow to the country.

The bank said that Indonesia's economy remained sound, although lower than forecast earlier, and is expected to chart 6.3% growth, which is also lower than forecast earlier due to a slowdown in the global economy. Economic growth is expected to remain underpinned by buoyant domestic demand, the potential increase in exports and robust growth in eastern Indonesia and Java. Taking that into account, the country's economic growth is expected to reach 6.1% to 6.5% in 2012 and 6.3% to 6.7% in 2013.

Financial stability is well maintained with improving intermediation function to support economic financing. Investment credit recorded a high growth of 29.8% year over year, which is expected to boost Indonesia's economic capacity.

Going forward, the board said it will continue to focus on policies to maintain external balance while also providing support for domestic economic growth.

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