Indonesia keeps rate steady, expects solid growth

    Indonesia's central bank kept its benchmark overnight reference rate, the BI rate, unchanged at 5.75 percent, as widely expected, saying it expects the country's economy to remain solid during the current global slowdown due to buoyant domestic consumption and investment.
    Nevertheless, Bank Indonesia noted that exports had declined in the second quarter, reflecting the global slowdown and lower commodity prices.
    "The current policy rate is considered consistent with inflation forecast, which is expected to remain low and contained within its target range of 4.5%±1% in 2012 and 2013," Bank Indonesia said in a statement following a meeting of its board of governors. BI cut its key rate by 25 basis points in February.
    Surprising many economists, Indonesia's economy expanded by 6.4 percent in the second quarter from a year ago, up from a revised 6.3 percent in the first quarter.
    For 2012 the central bank expects growth between 6.1 and 6.5 percent, rising to 6.3-6.7 percent in 2013, supported by private consumption and investment.

    Consumer prices in Indonesia rose 0.70 percent in July from the previous month for a year-on-year rate of 4.56 percent, but the central bank said the rise was due to seasonal factors and a shock to food prices.
    BI noted that the current account deficit rose in the second quarter due to lower exports and accelerating imports, both of raw materials and capital goods. But the bank said it expects the deficit to decline in the second half of the year to a level that "will not compromise macroeconomic stability."
    "Some factors underpinning that estimation are a better global economy and commodity prices supported by some policies undertaken by Bank Indonesia and the government," BI said, adding that strong investment and imports of capital goods in recent years is expected to boost the capacity of the domestic economy and thus reduce its dependence on imports.
     It added that international reserves at the end of July were $106.6 billion, or 5.6 months worth of imports and government debt service.
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