JAKARTA: Indonesia's central bank held its benchmark interest rate steady on Thursday, showing confidence that the country's inflation rate will cool back to a "normal" level after a spike late last year.
Bank Indonesia (BI), at the year's first policy meeting, kept its policy rate at 7.75 percent, and also held other rates steady.
All but one of 15 analysts in a Reuters poll predicted BI would hold the benchmark, with the other seeing a 25 basis point hike after the annual inflation rate hit 8.36 percent in December.
Thursday's hold was "a clear sign that the central bank remains confident that the current spike in inflation will prove temporary", said Gareth Leather of Capital Economics in London.
Leather said he expects the benchmark rate to hold all of 2015.
Earlier on Thursday, the Bank of Korea held monetary policy steady while sharply cutting this year's economic growth and inflation forecasts, while India surprised markets with a 25 basis point cut amid cooling inflation.
Prior to Thursday, BI predicted that the monthly inflation rate - which shot up following the government's move in mid-November to raise fuel prices - would return to its "normal" range in February. It sets a target of 3-5 percent for the year.
Analysts say inflation pressure should ease significantly from this month, as gasoline prices have fallen in line with a new subsidies policy President Joko Widodo implemented on Jan. 1.
POLICY TO STAY TIGHT
Plunging international oil prices let him remove the subsidy for gasoline and cap the one for diesel at a tiny amount.
Some economists say that there's now reduced pressure for a tight monetary policy stance. But Juda Agung, BI's executive director of economic and monetary policy, said "Until now, the global risk we see is still large enough that so we need to maintain our tight stance."
Between June and November 2013, BI raised the benchmark rate by 175 basis points to combat inflation, bolster the fragile rupiah and contain the then-widening current account deficit.
That deficit narrowed in 2014 to about 3 percent of gross domestic product. On Thursday, Juda said the outlook for 2015 is for a deficit of 3 percent, rather than the 2.8 percent seen in September last year.
A lingering worry for BI is how markets will react when the Federal Reserve starts raising U.S. interest rates, which could cause capital outflows from Indonesia and other emerging nations.
The rupiah was volatile in late 2014, in December touching 12,930 against the dollar, its weakest since 1998, before recouping some losses, aided by BI intervention.
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