Indonesia still on track to hike later this year

Bank Indonesia (BI) left rates at 6.50% today, as expected. The economic upswing will stay strong but the high level of the rupiah is helping to hold down prices. Nevertheless, inflation will probably accelerate sharply in the second half of 2010 and we expect that monetary tightening will start in September. Government bond prices have little upside from here but the rupiah should climb further.

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