*
Bank Indonesia keeps policy rate steady at 5.75%
*
Sees headline inflation back within target by August
*
Governor says rupiah can strengthen further
(Adds comments by an economist in paragraphs 11 and 12)
By Gayatri Suroyo and Fransiska Nangoy
JAKARTA, April 18 (Reuters) - Indonesia's central bank
on Tuesday kept its benchmark interest rates unchanged for a
third straight meeting, predicting headline inflation would be
back within its target sooner and after the rupiah currency
strengthened significantly.
Southeast Asia's biggest economy has been supported by a
commodities-led export boom, though economists expect a slowdown
in growth as policy tightening around the world poses a drag on
global demand.
Bank Indonesia (BI) left the 7-day reverse repurchase rate unchanged at 5.75%, as expected by all 30 economists polled by Reuters. It also kept steady its two other policy rates. Governor Perry Warjiyo told a news conference the current benchmark level remained sufficient to keep core inflation within BI's 2% to 4% target range and steer headline inflation to within the same target band sooner than previously estimated. "Last month inflation was already at 4.9%, this will continue easing ... We believe that starting August, it could be below 4%," he said, referring to the headline inflation rate in March of 4.97% which was the lowest in seven months. BI previously expected headline inflation to return to target in September. Meanwhile, with sentiment for riskier assets improving amid market forecasts that U.S. rates were near their peak, the rupiah has strengthened by almost 4% in the past month, even with some depreciation this week. BI said the rupiah could continue appreciating, supported by capital inflows and Indonesia's current account surplus. Nicholas Mapa, senior economist at ING, said trends were pointing to a potential shift in BI's tone in coming months as inflation moderates and the rupiah is helped by foreign inflows. "Against this backdrop, our base case would be for Warjiyo to extend his pause until the third quarter before carrying out rate cuts to help support the ongoing economic recovery," said Mapa, who also sees a case of BI bringing forward the rate cut to this quarter should inflation slow at a more pronounced pace. Some economists, however, expect further tightening, citing global uncertainties such as a potential further rise in energy prices as well as the inflationary impact of domestic spending related to Indonesia's general election planned for February 2024. "Our base case for BI rate in 2023 is 6.00%," said Bahana Sekuritas economist Satria Sambijantoro. BI raised rates by 225 basis points between August to January to tame inflation, which had shot up due to high global food and energy prices. Warjiyo said domestic consumption and exports continued to bolster domestic growth. The central bank kept its 2023 GDP growth outlook at the upper end of a 4.5% to 5.3% range and its current account forecast - between a deficit of 0.4% and surplus of 0.4% of GDP. (Reporting by Gayatri Suroyo, Fransiska Nangoy and Stefanno Sulaiman; Editing by Ed Davies and Jacqueline Wong)
