Indonesia holds rates, gives gloomy growth assessment

Indonesian presidential candidate Joko Widodo greets his supporters during a campaign rally in Tasikmalaya, West Java, Indonesia, Thursday, June 12, 2014 Indonesia’s central bank kept its key interest rate on hold Thursday, taking a cautious stance ahead of presidential polls, but gave a gloomy assessment for growth prospects this year. AP PHOTO/TATAN SYUFLANA

JAKARTA, Indonesia–Indonesia’s central bank kept its key interest rate on hold Thursday, taking a cautious stance ahead of presidential polls, but gave a gloomy assessment for growth prospects this year.

Frontrunner Joko Widodo is facing an increasingly tight race against ex-general Prabowo Subianto at the July 9 polls, and policymakers in Southeast Asia’s top economy are mostly holding off major decisions until after the vote, analysts say.

Bank Indonesia kept the interest rate at 7.50 percent for the seventh consecutive month but said it expected GDP growth could come in as low as 5.15 percent this year, toward the lower end of its outlook of between 5.1-5.5 percent.

It came after GDP growth in the first quarter slipped to 5.21 percent, a bigger fall than expected and its slowest pace since late 2009, after a controversial mineral ore export ban hit shipments of commodities. The ban was also blamed for an unexpectedly large trade deficit in April.

The central bank hiked rates aggressively last year when Indonesia was hit by emerging market turmoil, but raising rates was not an option for policymakers this time as such a move would hurt already-under-pressure exporters, analysts said.

Bank Indonesia said it was also worried about a rise in inflation ahead of the Ramadan holy month, in the world’s most populous Muslim nation, when people typically buy expensive food for celebrations, giving it little room to lower rates to boost growth.

“We are keeping it on hold because we see a few risks ahead,” central bank official Juda Agung said.