Indonesia holds key interest rate at 7.5% for fourth month

JAKARTA, Indonesia (AFP) - Indonesia's central bank held its benchmark interest rate at 7.50 per cent on Thursday for the fourth consecutive month as Southeast Asia's top economy showed signs of recovery from a tumultuous 2013.

Indonesia's currency has strengthened in recent months after plunging by more than 20 per cent last year and inflation is easing after almost doubling in 2013 from the previous year.

Bank Indonesia governor Agus Martowardojo said earlier on Thursday that the bank would not tolerate inflation beyond the 2014 target range of 3.5 per cent and 5.5 per cent.

While on-year inflation was still out of range in February at 7.75 per cent, it was an improvement on January's rate of 8.22 per cent.

The governor warned, however, the country's growth was still at risk of further tapering of the US Federal Reserve's bond-buying stimulus programme and a slowdown in China.

Mr Wellian Wiranto, an OCBC Bank economist, said that the central bank may face pressure to begin cutting rates in coming months, when the country is slated to hold nationwide elections.

"The worst may well be over for Indonesia, but with policy question marks lingering ahead of elections, the best is definitely yet to be," Mr Wiranto said.

Bank Indonesia had raised rates by 175 basis points between June and November as Indonesia's stock market plunged in the lead-up to the Federal Reserve's initial pullback.

The hikes were also aimed at strengthening the rupiah's diving value and inflation, which almost doubled to 8.38 per cent in 2013, largely driven by the hike in the price of subsidised fuel.

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