JAKARTA (dpa-AFX) - Indonesia's central bank is unlikely to cut interest rates over the coming months of 2017, despite a relatively poor growth outlook, Gareth Leather, an economist at Capital Economics, said.
Bank Indonesia on Thursday retained the key interest rate at 4.75 percent for the sixth consecutive month in April, as economists had widely expected.
'With inflation set to rise over the coming months and the rupiah vulnerable to sudden shifts in investor risk appetite, we expect rates will be left on hold for the remainder of the year,' Leather said.
'The economy could certainly do with some further support from the central bank'.
Although the CPI inflation eased slightly to 3.6 percent in March from 3.8 percent in February, it is likely to rise further in the coming months due to an increase in administered energy prices.
That said, Bank Indonesia described the 3-5 percent inflation target as 'achievable'.
Another worry for the bank is rupiah that has performed relatively well so far in 2017, but which could slump on the back of aggressive rate hikes by the US Fed, the economist said.
'Indonesia's relatively high level of foreign-currency denominated debt makes it vulnerable to big falls in the rupiah,' Leather added.
The victory of Anies Baswedan, who he has strong links with President Joko Widodo's main political opponents, in Jakarta's mayoral election has raised fears that fringe Islamist groups could play a key role in influencing Indonesian politics over the coming years, the economist noted.
Copyright RTT News/dpa-AFX