Bank Indonesia to raise interest rates<\/p>\n
JAKARTA (JP): Bank Indonesia says it will further increase
\ninterest rates to cope with strong inflationary pressures from
\nrising import costs and higher fuel prices imposed on major
\nindustrial users.<\/p>\n
Bank Indonesia deputy governor Miranda Goeltom said the
\ncentral bank sought proactive measures to avoid high inflation
\nrates.<\/p>\n
\"To prevent inflation from surging, we need monetary responses
\nnow,\" Bank Indonesia deputy governor Miranda Goeltom told
\nreporters on the sidelines of a seminar on Bank Indonesia's
\nannual report for the year 2000.<\/p>\n
But she declined to reveal by how much interest rates would be
\nincreased.<\/p>\n
On Monday, the central bank increased its overnight
\ncertificate rates by 0.5 of a percentage basis point, to 12.125
\npercent.<\/p>\n
The move was however aimed at soaking the market's rupiah
\nsupply to prevent the currency from being used for U.S. dollar
\npurchases.<\/p>\n
Miranda added, however, that raising interest rates was not
\nBank Indonesia's only policy to ease pressure on the rupiah.<\/p>\n
She said the government's plan to hike fuel prices had already
\ntriggered a jump in the consumer price index this month.<\/p>\n
The government decided on Monday to postpone the plan to
\nOctober, except for industrial users who must bear a fuel price
\nincrease to half of the international market price.<\/p>\n
Miranda said the steep depreciation of the rupiah had further
\nadded pressure on the inflation rate.<\/p>\n
The depreciation of the rupiah, she said, gave rise to
\nimported inflation, as prices of imported products rose in line
\nwith the weakening of the rupiah.<\/p>\n
According to the Central Bureau of Statistics (BPS), the
\ninflation rate for this month is estimated to hit one percent
\ncompared with 0.87 percent in the month before.<\/p>\n
The central bank is forecasting this year's inflation rate to
\nreach between 4 percent to 6 percent, not including the
\ninflationary impact of government pricing and revenue policies.<\/p>\n
These policies comprise among other things fuel prices, civil
\nservant salaries and the provincial minimum labor wage.<\/p>\n
\"Government policies affecting prices and revenues are
\nestimated to cause an additional inflation of between 2 to 2.5
\npercentage points,\" Bank Indonesia said in its annual report.<\/p>\n
The report noted that monetary responses to curb inflation
\ncaused by non-monetary pressures might be costly.<\/p>\n
These non-monetary pressures could be unexpected fiscal
\npolicies either from the central or regional government, a sharp
\ndepreciation of the rupiah due to non-economic factors, and
\nsecurity disturbances or natural disasters interrupting food
\ndistribution or production, the report said.<\/p>\n
It then warned that applying high interest rates as a response
\nto these non-monetary factors, might impede economic recovery.<\/p>\n
Chairman of the Association of National Private Banks
\n(Perbanas), Gunarni Soeworo also warned against rising interest
\nrates too high.<\/p>\n
According to her, Bank Indonesia's move to raise interest
\nrates will force the banking industry to offer higher time
\ndeposit interest rates.<\/p>\n
\"Banks will consequently be vulnerable to negative spreads and
\nerosion of capital,\" she warned.<\/p>\n
A bank suffers from negative spread if the cost for paying
\ninterest rates for its depositors is higher than the revenue the
\nbank earns from its lending rates.<\/p>\n
Gunarni said that recapitalized banks holding government bonds
\nwith fixed rates were the most vulnerable ones to Bank
\nIndonesia's higher interest rates.<\/p>\n
The total assets of some recapitalized banks consist of
\nbetween 40 percent to 60 percent of government bonds, quite a
\nportion of which carries a fixed rate of 12 percent, she added.<\/p>\n
Gunarni therefore suggested that the government exchange some
\nof the government fixed bonds with restructured loans currently
\nheld by the Indonesian Bank Restructuring Agency (IBRA).(bkm)<\/p>",
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