RPT-SCENARIOS-Bank Indonesia to put emphasis on inflation

JAKARTA, Nov 2 - Indonesia's central bank is likely to indicate a modest shift in its stance this week towards inflation and away from nurturing growth to indicate it is a step closer to raising interest rates.

Analysts unanimously expect the central bank to keep its policy rate <BIPG> at a record low of 6.50 percent on Wednesday.

But they expect it to acknowledge upcoming inflation pressures that they say is laying the ground for a rate rise in in the first quarter of 2010 to curb price pressures.

Here are the possible outcomes of Bank Indonesia's (BI) policy meeting on Wednesday. <ECONID>

KEEPS RATES ON HOLD

All 13 analysts in a Reuters poll on Monday predicted the central bank would hold its policy rate at 6.50 percent. It cut rates to that level in August, the ninth reduction to combat the global economic downturn since late in 2008. [ID:nJAK495151]

Bank Indonesia is likely to repeat that rates should be unchanged for now to support economic recovery, banks and to keep its policy consistent with achieving an inflation target of 4-6 percent at the end of 2010. It cited similar factors in October and September. [ID:nJKB001391]

The central bank offered a more upbeat economic outlook in its last meeting, raising its forecasts for growth in both 2009 and 2010. It is likely to repeat those forecasts on Wednesday, despite some pull back in domestic asset prices.

* PROBABILITY: Extremely high.

* MARKET REACTION: This outcome is fully priced into the market, which instead will be looking for clues on future policy action.

FLAGS INFLATION PRESSURES TO SIGNAL RATE RISE TO COME

The central bank has flagged future inflation pressures in the past. But this time it is likely to put more emphasis on the possibility of higher price pressures next year arising from planned increases in electricity and some energy prices. [ID:nJKB003212]

That will signal its room to maintain current rate levels is getting limited and reinforce market expectations that Bank Indonesia will raise rates in the first quarter of 2010.

Inflation remains subdued for now. Figures this week showed annual inflation in October was a lower-than-expected 2.57 percent. [ID:nJKB003241]

But inflationary pressures are emerging. The country's state road-toll company raised its tariffs in September by up to 18.5 percent. [ID:nJAK123091]

* PROBABILITY: High

* MARKET REACTION: Limited since the central bank has flagged future inflation pressures in past months. But if its inflation message is too pointed, it could scare foreign investors, who have started taking profits on this year's big run up in Indonesian debt prices.

The six-month central bank debt (SBIs) rate rose to 6.699 percent in an auction last week, from 6.681 percent in the previous week, suggesting the market has partly priced in a rate hike in the first quarter.