Indonesia holds key rate at 7.25% as rupiah steadies

Indonesia's central bank held its benchmark interest rate at 7.25 percent Tuesday after recent rises, citing improved domestic conditions and the Fed's decision not to taper off its stimulus programme yet. Bank Indonesia had lifted rates by 150 basis points since June as stocks slumped and the currency plunged due to outflows of foreign capital on fears that the US would reduce its $85 billion a month bond-buying programme. Emerging markets worldwide were hit hard by concerns that the Federal Reserve would taper off the programme, with Indonesia's problems worsened by its own domestic economic woes. But Indonesia's central bank stood pat Tuesday, saying pressures on Southeast Asia's top economy had eased. It pointed to an improvement in conditions at home and the Fed's unexpected decision last month not to reduce its bond-buying scheme. "The pressures on the rupiah have reduced in line with easing inflation, an improvement in the trade balance as well as the delay of the Fed's tapering," bank governor Agus Martowardojo told reporters. "Confidence has been restored." Official data this month showed that Indonesia posted a surprise trade surplus in August of $132.4 million, from a record deficit the previous month. Inflation eased in September to 8.40 percent from a four-year high of 8.79 percent the previous month, data showed. The rupiah, one of the world's worst performing currencies this year, was trading at 11,540 to the dollar on Tuesday, Dow Jones Newswires reported. It has gained 0.6 percent against the dollar since the Fed's decision not to cut back on its massive bond-buying programme, according to Dow Jones.