Indonesia keeps rates steady as inflation pressures increase

Bank Indonesia (BI) governor Agus Martowardojo and his board held the 7-day reverse repurchase rate steady at 4.75 per cent on Thursday.

The central bank also kept the deposit facility and lending facility rates, which act as the floor and ceiling of the overnight inter-bank money market, unchanged at 4.00 percent and 5.50 percent, respectively.

The central bank had applied the longest easing policy previous year and has kept refraining from raising its basic rate since months ago, amid the threat of capital outflows following the unveil of USA policies which support the Fed.

"With the economy struggling to gain momentum, but inflationary pressures on the rise, Bank Indonesia's decision to keep interest rates on hold at 4.75 per cent today came as no surprise", said Gareth Leather, a senior Asia economist at Capital Economics in London.

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Capital Economics said that despite the economy's "poor outlook", a rate cut is "unlikely this year", partly because of anticipated hikes by the Fed and the possibility Indonesian inflation - at a 13-month high in April - will go higher.

Bank Indonesia said inflation is "manageable", but it faces risks, including higher energy costs and a pick up in food prices.

BI said it expects second quarter growth of around 5.1 percent, and 2017 full-year growth at the midpoint of its 5.0-5.4 percent target range. It sees expansion of 5 per cent to 5.2 per cent next year.

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