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INDONESIA INFLATION SLOWS, CENTRAL BANK MAY HOLD RATE

By NBF NEWS

Indonesia's inflation slowed last month, giving the central bank room to refrain from raising interest rates when it meets next week, Bloomberg said on Thursday.

The consumer price index rose 3.43 per cent in March from a year earlier, the central statistics agency said in Jakarta today. That compares with the 3.7 per cent median estimate of 22 economists in a Bloomberg News survey. The inflation rate was 3.81 percent in February, a report showed last month.

Indonesia's central bank, which will meet on April 6 to review its policy, has kept borrowing costs unchanged since cutting them to a record low in August to help the economy avoid a recession. It has refrained from following Malaysia, India and Australia in raising interest rates this year even as inflation returns to the region amid a global recovery.

The country's inflation 'remains below the Bank Indonesia 6.5 percent policy rate,' David Cohen, an economist at Action Economics in Singapore, said before the report. 'Along with the firmness in the rupiah, it gives the central bank some leeway for patience before tightening.'

The rupiah rose 0.3 per cent to 9,067 a dollar at 12 p.m. in Jakarta on Thursday. It has climbed 3.6 percent this year, the second- best performer among 10 Asian currencies outside Japan tracked by Bloomberg. The Jakarta Composite index rose 1.8 per cent.

The Reserve Bank of India last month increased the benchmark reverse repurchase rate to 3.5 per cent from a record- low 3.25 per cent, and the repurchase rate to five per cent from 4.75 percent, saying containing inflation has become 'imperative.' Australia and Malaysia also raised borrowing costs in March.

Indonesia's central bank will probably maintain its benchmark interest rate at 6.5 percent next week, according to 15 of 16 economists in a Bloomberg News survey. One economist expects an increase to 6.75 per cent.

Indonesian consumer prices fell 0.14 per cent in March from the previous month after rising 0.3 per cent in February.

The strengthening of the rupiah has had a 'conducive' impact on inflation, Rusman Heriawan, chairman of the statistics agency, said today. 'Inflationary pressures have cooled,' said Juniman, an economist at PT Bank Internasional Indonesia in Jakarta who, like many Indonesians, uses one name. The government has no plan to raise fuel prices until at least the beginning of the second half of this year, he said.

Prices in Southeast Asia's largest economy have remained low partly because harvests in the main rice-producing regions such as Java island have bolstered food supply, according to Aldian Taloputra, an economist at PT Mandiri Sekuritas in Jakarta.