By Gayatri Suroyo and Stefanno Sulaiman

JAKARTA - Indonesia's central bank left interest rates at a record low on Thursday, saying it was monitoring risks from rising inflation while downplaying recent pressure on the rupiah currency.

Bank Indonesia is expected to raise rates in the third quarter, analysts say, to shore up a weaker rupiah and guard against capital outflows from aggressive U.S. rate hikes.

BI kept the benchmark 7-day reverse repurchase rate at 3.50%, as expected by the majority of economists in a Reuters poll. Its two other policy rates were also unchanged.

BI remains one of the few major Asian central banks not to have lifted rates from a pandemic record low since inflation has held within its 2%-4% target range. The Philippine central bank hiked rates for a second consecutive policy meeting on Thursday.

BI Governor Perry Warjiyo told a news conference he would continue to monitor inflation, including expectations of price pressures and core inflation and take further monetary normalisation measures accordingly.

"Even though Bank Indonesia did not raise interest rates, it does not mean this will disturb our external resilience," Warjiyo said, citing abundant foreign exchange supply from an expected balance of payments surplus and low current account deficit.

Inflation may slightly overshoot its target this year to 4.2% by year-end, he reiterated, adding the authorities had been taking rupiah stabilisation measures to contain imported inflation. Headline inflation in May stood at 3.55% on year.

The governor also warned of stagflation risks for the global economy, but maintained BI's 2022 economic growth forecast for Indonesia of 4.5% to 5.3%.

Economists in the Reuters poll expect BI's first rate hike will come in the next quarter.

"The central bank acknowledged the risk of inflation breaching the target in the second half of the year and pressure on the currency from global...

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