BI acts to cool down economy<\/p>\n
JAKARTA (JP): Bank Indonesia announced an expansion of the
\nintervention band to 8 percent and a rise in the minimum reserve
\nrequirement to 5 percent yesterday in a surprising move to reduce
\nspeculative trading and to cool down the overheated economy.<\/p>\n
Bank Indonesia Governor J. Soedradjad Djiwandono said that the
\nexpansion of the intervention band of the rupiah against the U.S.
\ndollar from 5 percent was necessary to reduce speculative trading
\nin the equity and money markets.<\/p>\n
Soedradjad explained that the expansion of the intervention
\nband was part of the central bank's policies designed to cool
\ndown the overheating economy as well as to strengthen the ability
\nof the money authority to control currency fluctuations.<\/p>\n
\"The move is an important measure to stabilize the overall
\nmonetary situation,\" he told reporters after the central bank's
\nhearing with House Commission VII for finance and trade.<\/p>\n
He said that the rapid growth in the financial market over the
\nlast five years had not only had a positive impact on the
\ncountry's economy but also often caused jittery trading in the
\nmoney market.<\/p>\n
The average daily transactions in the rupiah market increased
\nsharply from Rp 400 billion in 1994 to over Rp 1.1 trillion in
\n1995 and to Rp 20 trillion in June this year. The average daily
\ntransactions in the foreign exchange market also jumped from
\nUS$2.2 billion in 1994 to more than $5 billion in 1995 and $7
\nbillion in June of this year.<\/p>\n
\"The daily foreign exchange transactions exceeded $14 billion
\nat the end of July,\" he said.<\/p>\n
In the capital market, the average daily stock transactions
\nsurged from Rp 109 billion in 1994 to Rp 150 billion in 1995 and
\nto more than Rp 269 billion in June.<\/p>\n
\"Non-fundamental factors such as the rioting on July 27 often
\nincited uncertainty in the financial market,\" he said, referring
\nto the unrest which erupted following the storming of the
\nIndonesian Democratic Party's headquarter from its ousted leader
\nMegawati Soekarnoputri.<\/p>\n
He denied that yesterday's move was launched to counter a
\nworsening of the political situation or the worsening of the
\ncountry's economic fundamentals.<\/p>\n
Foreign reserves<\/p>\n
Soedradjad said that the foreign exchange reserves held by the
\ncentral bank remained at a healthy level of $16.45 billion in
\nJuly, slightly lower than the $16.48 billion in June.<\/p>\n
\"In addition, we still have a standby loan of $2 billion,\" he
\nsaid of the central bank's financial situation.<\/p>\n
Soedradjad said that the central bank's decision to raise the
\nminimum reserve requirement for commercial banks from 3 percent
\nto 5 percent on April 16, 1997, was expected to contain the
\neconomic overheating.<\/p>\n
\"The rise in the reserve requirement, the second since
\nFebruary, is necessary to limit the maneuverability of commercial
\nbanks,\" he said.<\/p>\n
He said that the rise in the reserve requirement from 2
\npercent to 3 percent in February this year had actually had a
\npositive impact in line with the central bank's efforts to cool
\ndown the overheated economy.<\/p>\n
\"But our target has not been achieved. The inflation rate has
\ndropped but we want a much lower rate. The current account
\ndeficit is still under control but we have to prevent it from
\nwidening further,\" he said.<\/p>\n
Soedradjad said the outstanding loans provided by the
\ncountry's commercial banks rose by 25 percent in July this year
\n-- far higher than the central bank's 18 percent target for the
\n1996\/97 fiscal year -- to Rp 264.55 trillion as of July this year
\nfrom Rp 211.76 trillion in the same month of 1995.<\/p>\n
The growth rate of the loans reached 34 percent in the same
\nperiod, much higher than the 14 percent growth booked by the
\nstate-owned banks.<\/p>\n
The rupiah's value rose sharply against the dollar to 2.326 in
\nearly trading on the spot market here yesterday from 2.348 on the
\nprevious day, following the central bank's move to widen the
\nintervention band.<\/p>\n
The rise in the intervention band allows the rupiah to
\nfluctuate within a range of 192 points or 8 percent. With the
\nrise, the central bank will only intervene in the market when the
\ndollar trades on the spot market at 4 percent above or below the
\nmiddle value of its daily conversion rates.<\/p>\n
However, the central bank's surprising move caused jittery
\ntrading on the Jakarta Stock Exchange as foreign investors feared
\nthat the rise in the reserve requirement would cause a rise in
\nthe inflation rate. (hen)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-acts-to-cool-down-economy-1447893297",
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