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onsumer prices in Indonesia climbed more slowly in October, sparking speculation that Bank Indonesia (BI) may keep its benchmark interest rate unchanged at 6.5 percent when its officials meet this week.

The Central Statistics Agency (BPS) announced Monday that Indonesia’s monthly inflation rose only 0.06 percent in October, after jumping 0.44 percent in September. October inflation pushed year-on-year inflation to 5.67 percent in October and calendar year inflation to 5.35 percent.

BPS chairman Rusman Heriawan said consumer price inflation in the first 10 months of 2010 had surpassed the government’s 5.3 percent inflation target for the year.

“If only there could be a miracle of [deflation] in the last two months of this year, then we might maintain this year’s inflation at 5.3 percent or even less,” Rusman said.

This year’s inflation may not exceed 6 percent, he said.

“We may have an inflation rate that doesn’t exceed 6 percent, as long as we can maintain inflation at a maximum of 0.65 percent over the next two months,” he said.

Barclays Capital analyst Prakriti Sofat on Monday said BI may be reluctant to increase its benchmark interest rate, with better-than-expected headline inflation and easing inflation expectations providing the central bank with policy flexibility.

“We believe reluctance to increase the rate stems from concerns that a hike would further widen interest rate differentials that may attract more short-term inflows, which could complicate BI’s liquidity management efforts,” she said.

The better-than-expected inflation reading would provide further impetus for BI to keep rates unchanged until year end, Prakriti said.

BI has kept borrowing costs at a record low, putting off an interest-rate increase that could spur capital inflows in Southeast Asia’s largest economy. It has also ordered lenders to set aside more cash reserves to reduce the money supply without hurting the economic expansion that has pushed Indonesian stocks to a record high.

“Inflation is slowing and we think that gives BI room to keep interest rates the same for the rest of the year,” HSBC Holdings Plc economist in Singapore Wellian Wiranto said, as quoted by Bloomberg News.

“We are expecting a rate hike early next year, maybe in January, as robust growth means more tightening measures may be needed.”

According to 17 of 19 economists surveyed by Bloomberg News, BI will keep its key rate at 6.5 percent on Nov. 4. This is the lowest level the rate has been since July 2005.

Indonesia’s exports reached US$12.08 billion in September, a 12.02 percent decrease from the previous month. According to the BPS, the decreases in September were a result of a significant decrease in bio and animal fat and oil exports.

Indonesia’s imports reached $9.53 billion in September, a 21.69 percent decrease from the previous month.

“We are expecting increases in both exports and imports in November, as our ports’ activities are returning to normal after Ramadan,” Rusman said.

Cumulatively, Indonesia’s exports in the January-September period reached $110.81 billion, a 38.27 percent increase compared to the same period last year, while non-oil and gas exports reached $91.83 billion, a 34.89 percent increase from last year, he said. (ebf)