From: By FARIDA HUSNA and REUBEN CARDER
JAKARTA -- Bank Indonesia kept its benchmark overnight rate unchanged at 6.5% during a rate review Thursday, and said the near-term outlook for Southeast Asia's largest economy is robust while inflation remains well contained.
The central bank's rate decision and economic forecast underscore the fast-improving macroeconomic backdrop in Indonesia and abroad, and should allow domestic financial assets to continue gaining, analysts said.
But they warned that given the prospect of rising consumer prices next year, Bank Indonesia's efforts to tame inflation will be key in complementing the government's pro-growth measures.
Bank Indonesia said it kept the rate unchanged in line with "efforts going forward to target lower inflation while also taking into account economic recovery efforts."
The central bank reiterated a previous statement that economic growth is likely to reach between 4% and 4.5% this year before rising to 5%-5.5% next year and 6% or higher in 2011. The economy expanded 6.1% in 2008.
Meanwhile, the consumer-price index this year is likely to rise 3.5% or less, it said, before picking up to 4% to 6% in 2010.
Fourteen regional economists polled by Dow Jones Newswires had unanimously forecast the central bank to keep the rate steady.
Bank Indonesia had so far cut the key rate three percentage points in the current cycle, with the most recent cut coming in August.
The CPI rose 2.41% in November from a year earlier, which analysts said was the slowest pace of gain in close to a decade, while prices declined 0.03% from a month earlier. The CPI had climbed 2.57% year-to-year and 0.19% month-to-month in October.
Market participants said that while the rate decision and forecasts were within expectations, they were likely to support further gains in local assets, which have benefited from improved investor sentiment as the domestic economy has weathered the global downturn relatively well.
Indonesian shares have gained more than 80% since January while the rupiah has risen more than 15% against the U.S. dollar.
Markets weren't immediately moved by the rate announcement. Jakarta's benchmark index rose 1.2% Thursday, in line with gains around the region. Goldman Sachs said the rupiah is likely to strengthen to 9,300 against the dollar over the next three months.