Friday, January 7, 2011

BI Keeps Benchmark Rate at 6.50 Percent

Jakarta, Indonesia (News Today) - Bank Indonesia Wednesday kept its overnight policy rate unchanged at a historical low of 6.50%, matching expectations, despite inflation in December coming in well above its year-end target.

Bank Indonesia, which has kept interest rates steady since August 2009 to foster a recovery in Southeast Asia's largest economy, is coming under increasing pressure to raise borrowing costs to damp inflation; consumer prices rose 6.96% from a year earlier in December, accelerating from November's 6.33% increase.

The authorities introduced several measures last year--such as a one-month minimum holding period for the central bank's short-term securities, and higher reserve requirements for commercial banks--which analysts describe as precautionary measures against sudden capital reversals.

Thirteen out of 14 economists polled by Dow Jones Newswires expected the central bank to stand pat, saying that Bank Indonesia is concerned that any policy rate hike would further attract potentially destabilizing capital flows into the country. But analysts also said that Bank Indonesia will eventually have to hike the benchmark rate, with some forecasting a rise of 100 basis points this year.

Source : kompas

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