Indonesia shares pare gains on disappointing GDP data; Indian central bank holds rate

Indonesian shares erased some early gains on Friday after the economy shrank slightly more than expected in the fourth quarter, while the Indian rupee strengthened against the dollar after the central bank kept rates on hold.

The Jakarta benchmark, which had added as much as 0.7% in early trade, retraced to be up only 0.1% by 0407 GMT.

Gross domestic product in Southeast Asia's largest economy fell slightly more than expected in the fourth quarter, leading to its first full-year contraction in over two decades as it struggled with the fallout of the COVID-19 pandemic.

ING analysts expect Indonesia's GDP to continue to contract in the first quarter of 2021 and see the Bank Indonesia keeping the door open for further easing, with recent weakness in rupiah the main impediment to further rate cuts.

In India, the rupee slightly strengthened after the central bank held its key rates steady in a widely expected move and reiterated its support for economic recovery by ensuring ample rupee liquidity in the banking system.

Shares retreated slightly from all-time highs after the announcement and were trading up 0.4% up.

Measures to cap rising bond yields in the wake of a higher-than-expected fiscal deficit announced earlier in the week are likely to be "critical watchpoints", said Lakshmi Iyer, Chief Investment Officer of Debt and Head of Products at Kotak Mahindra Asset Management.

Thai and Philippine benchmarks edged 0.7% higher each, in line with gains in broader markets following a strong finish on Wall Street overnight as progress in vaccine distribution prompted bets on further normalisation in the global economic recovery.

Thai shares were on track to post a 2% weekly gain, after three consecutive weeks in the red.

The country's health minister said on Thursday that the tourism-reliant country will import the first doses of AstraZeneca's vaccine from Asia after Europe enforced export controls.

In the Philippines, annual inflation accelerated faster than expected to hit the highest level in two years in January, limiting the central bank's room for further interest rate cuts at its meeting next week.

Most currencies in the region weakened as the dollar headed for its best weekly gain in three months, supported by growing confidence that the US economic recovery will outpace global peers.

The Indonesian rupiah, Malaysian ringgit, Singapore dollar and the Thai baht fell between 0.1% and 0.4%.