Indonesia's central bank kept its benchmark interest rate unchanged on Tuesday, as widely expected, saying the existing level is consistent with efforts to contain inflation and the current account deficit.
A Reuters poll showed 16 out of 18 analysts expected Bank Indonesia (BI) to leave the benchmark rate on hold due to concerns over a weak rupiah and risk of capital outflows if foreigners reduce holdings in government bonds.
In a statement on Tuesday, BI said it will "strengthen the stabilisation measures for rupiah, in order to maintain macroeconomic and financial stability."
BI also left the overnight deposit facility rate and lending facility rate unchanged at 5.50 percent and 8.00 percent respectively on Tuesday.
The rupiah has strengthened around 2 percent since it hit its lowest level in 17 years last month, but the currency may weaken later this year on expectations that the Federal Reserve will start hiking U.S. interest rates.
Foreigners own almost 40 percent of the Indonesian government's local-currency bonds, fuelling concerns of capital flight when U.S. rates rise.
The rupiah was relatively stable at 12,980 per dollar after the policy announcement.
Pressure on the rupiah forced Bank Indonesia (BI) to pause in March, after it had cut its policy rate by 25 basis points to 7.50 percent in February.
"The outlook for the rupiah will continue to have an influence on the direction of monetary policy," said Gareth Leather of Capital Economics, adding that if the Fed's normalisation causes a sharp sell-off in the rupiah, "BI could be forced to reverse February's surprise rate cut."
Leather said there is further scope to cut by 50 basis points later in the year, bringing the rate to 7.00 percent by the end of the year, if the rupiah weakens gradually.
The government has said the economy could do with a looser monetary policy. Speaking to Reuters on March 18, Vice President Jusuf Kalla said he would like to see cuts of 100 basis points to the key rate by the end of this year to revive economic growth. BI is independent from the government.
Growth in Southeast Asia's largest economy has slowed to 5.02 percent in 2014, the weakest in five years.
BI on Tuesday said that growth in the first quarter would still be moderate, but is set to pick up in the second quarter. The central bank's outlook for growth remains between 5.4-5.8 percent, but at the lower end of that range.
Annual inflation in March picked up slightly to 6.38 percent from 6.29 percent a month before.
original source: http://www.reuters.com/article/2015/04/14/indonesia-economy-rates-idUSL4N0XA3SQ20150414