Indonesia left its main interest rate unchanged for a 12th month, keeping borrowing costs at a record low even as inflation accelerated to the fastest pace in 15 months on higher food prices. Bank Indonesia kept its reference rate at 6.5 percent, it said in a statement in Jakarta today. All 22 economists in a Bloomberg News survey had expected the decision. The measure is at the lowest level since its introduction in July 2005. Indonesia has refrained from following economies from India to Malaysia in raising rates as President Susilo Bambang Yudhoyono targets annual growth of 6.6 percent. A strengthening rupiah may help limit inflationary pressures and allow the central bank to put off increasing borrowing costs, according to Standard Chartered Plc. “Indonesia’s inflation phenomenon is more driven by the supply side,” Eric Alexander Sugandi, an economist at Standard Chartered in Jakarta who expects the benchmark to be raised in the fourth quarter, said before the decision. “The central bank has let the rupiah breach the 9,000 mark. One reason for this is to reduce the pressure from imported inflation.” Stocks in Indonesia fell the most in more than two months yesterday after an Aug. 2 inflation report showed consumer prices rose 6.22 percent in July from a year earlier, raising concern the central bank would bring forward rate increases. The main stock index declined 0.1 percent as of 12 p.m. in Jakarta today. Rupiah’s Rise The rupiah has risen 4.9 percent against the dollar this year, the third-best performer in Asia, as an accelerating economy and a benchmark interest rate that’s higher than those in Malaysia, Thailand and the Philippines lures investors. Indonesia’s $540 billion economy expanded 5.7 percent in the first quarter, the fastest pace in more than a year. Indonesia’s economy probably expanded 6 percent last quarter from a year earlier, the most since the third quarter of 2008, according to the median of 19 estimates in a Bloomberg survey. Faster growth has helped boost profit at companies including PT Citra Marga Nusaphala Persada, an Indonesian toll- road operator, and PT Indocement Tunggal Prakarsa, a cement producer. Citigroup Inc. said in a report this week that the surge in July inflation has boosted odds the central bank will lift interest rates earlier than its forecast for an increase in the first quarter of 2011. The central bank will be “more hawkish” in its next monetary policy statement, Citigroup said. “There’s a possibility that they increase the BI rate faster than expected,” Sugandi said. “It’s difficult for the central bank to keep the inflation at its targeted 4 percent to 6 percent given July’s inflation figure.” Closer Coordination The central bank said Aug. 2 it needs closer coordination with the government to keep food prices “reasonable” after bad weather affected supply and spurred inflation. Indonesia’s 2011 inflation rate may be about 3.5 percent to 5.5 percent and the medium-term rate may be about 3 percent to 5 percent, Governor- designate Darmin Nasution said in Jakarta yesterday. “Bank Indonesia is always monitoring the inflation rate,” he said when asked about last month’s increase in consumer prices, which exceeded the forecast of all 20 economists surveyed by Bloomberg News. Consumer prices may climb in a range of 5.8 percent to 6 percent this year, Bank Indonesia Deputy Governor Hartadi Sarwono said July 20. To contact the reporters on this story: Greg Ahlstrand in Jakarta at gahlstrand@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

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