Indonesia's central bank reiterated on Monday that interest rates were likely to be kept unchanged this year owing to benign inflationary pressures, a view far more dovish than most market analysts. "We expect inflation to be within its target range this year, therefore there is no need to review the level of interest rates," senior deputy governor, Darmin Nasution, told reporters.
The central bank targets annual inflation at the end of the year at between 4 percent and 6 percent for 2010. The central bank has kept its benchmark overnight rate at a record low of 6.5 percent for seven months, citing the current rate level as appropriate for fostering growth in Southeast Asia's biggest economy.
Market analysts expect inflation will grind higher but stay within the central bank's target range, and also believe Bank Indonesia's priority is to push credit growth. A Reuters poll on March 3 showed analysts have pushed back the timing of an expected rate rise to the third quarter from the second quarter predicted in a similar poll in the previous month amid improving inflation outlook.
The poll also showed analysts scaling back their year-end rate forecast to 7.0 percent, from 7.50 percent in the previous poll. Nasution also said the central bank will continue to maintain stability in the rupiah and reiterated that it is not targeting any specific level for the currency. "Our main objective is that it should not be too volatile, but we are not targeting any specific level," he said.
The rupiah gained 0.6 percent to 9,115 per dollar on Monday. It has gained 3.35 percent so far this year due to strong inflows of foreign capital seeking domestic high-yielding assets, such as bonds. (Reporting by Dicky Kristanto and Adriana Nina Kusuma; Writing by Gde Anugrah Arka; Editing by Vidya Ranganathan).