Indonesia’s economic growth held above 6 percent for an eighth quarter as domestic consumption and rising investment countered an export slump, reducing the need for the central bank to cut interest rates.

Gross domestic product rose 6.17 percent in the three months ended Sept. 30 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a 6.37 percent gain reported previously for the second quarter, and matched the median estimate of 16 economists surveyed by Bloomberg News.

Policy makers in Southeast Asia’s biggest economy have avoided adding to a February rate cut even as neighbors from Thailand to the Philippines extended monetary easing to counter faltering global growth. President Susilo Bambang Yudhoyono has pledged to build more highways, airports and ports to improve infrastructure and meet a growth target of an average 6.6 percent by the end of his second term in 2014.

“One can rely on Indonesia to deliver relatively stable growth rate more than any other Asian country,” Aninda Mitra, a Singapore-based economist at Australia & New Zealand Banking Group, said before the report. “Weakening net external demand will weigh on overall growth but the domestic investment cycle remains sufficiently strong to limit any unexpected setbacks.”
Bonds Rise

Indonesia’s 7 percent bonds maturing in May 2022 extended their gains after the report, pushing the yield to drop two basis points today, or 0.02 percentage point, to 5.61 percent as of 11:29 a.m. in Jakarta, the lowest level since March 5, prices from the Inter Dealer Market Association show.

The rupiah eased 0.2 percent to 9,630 per dollar. It has fallen more than 6 percent this year, the biggest decline among 11 most-traded Asian currencies tracked by Bloomberg. The Jakarta Composite index slid 0.9 percent.

The rupiah’s decline this year has boosted import costs and helped push inflation to a 13-month high in October, reducing the scope for monetary easing.

“The rupiah’s weakness will likely deter near-term rate cuts,” Fred Gibson, an economist at Moody’s Analytics in Sydney, said before the report. “Higher government spending over the last year has curbed the need for aggressive monetary stimulus measures, a trend that should persist unless global economic conditions deteriorate.”
Exports Slump

Indonesia’s exports fell 9.4 percent in September from a year earlier, a report showed last week, a sixth straight month of declines. Consumer prices climbed 4.61 percent in October from a year earlier.

Still, domestic investment in the third quarter climbed 33 percent and foreign direct investment advanced 22 percent from a year earlier, government data showed last month.

The manufacturing Purchasing Managers’ Index climbed to 51.9 from 50.5 in September, HSBC Holdings Plc and Markit Economics said last week, and strong local demand has boosted revenues of companies. PT Bank Mandiri, the country’s biggest lender by assets, posted a 39 percent jump in third-quarter profit to the highest level in at least nine years.

“Expansion remains robust as investment and domestic demand increased,” Arga Samudro, an economist at PT Bahana Securities in Jakarta, said before the report. “We don’t expect the central bank will change its interest rate.”

ref: http://www.bloomberg.com

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