Indonesia holds key rate as rupiah gets election boost

Central Bank of Indonesia. Photo by EPA

JAKARTA, Indonesia – Indonesia's central bank kept its key interest rate on hold Thursday, July 10, after the rupiah bounced back as investors betted on a win for presidential hopeful Joko Widodo and inflation eased further.

Both Widodo and his only rival, ex-general Prabowo Subianto, declared victory Wednesday in Pemilu 2014, the country's most divisive presidential election since the end of authoritarian rule in 1998.

Widodo was leading in the majority of unofficial tallies, which have correctly predicted the results of previous elections, although Prabowo claimed his own counts showed he had won.

Investors however are betting that Widodo, seen as more market-friendly than Prabowo, will win. Official results are expected on July 22.

The rupiah, which has slumped in recent weeks as Prabowo made gains, was up 0.4% in afternoon trade at 11,574 to the dollar, taking pressure off the central bank for a rate increase to boost the currency.

Bank Indonesia kept its key rate on hold at 7.50% for the 8th consecutive month.

"We are not expecting [Bank Indonesia] to be forced into more tightening by another slump in the rupiah," said Capital Economics in a note.

Official data released this month also showed that inflation slowed further to 6.70% year-on-year in June after spiking last year following a rise in fuel prices.

An interest rate hike could also further dent GDP growth, which slipped to its slowest pace since late 2009 in the first quarter due in large part to a controversial mineral ore export ban.

The central bank lifted rates to their current level in 2013 when Indonesia was hit by emerging market turmoil, a strategy credited with helping the country through the worst of the crisis. – Rappler.com