BI anticipates further drop in interest rates<\/p>\n
JAKARTA (JP): Newly appointed Bank Indonesia deputy governor
\nMiranda S. Goeltom anticipates a further decline in domestic
\ninterest rates on the back of expectations of lower inflation and
\na stronger rupiah.<\/p>\n
She predicted that Wednesday's auction of Bank Indonesia one-
\nmonth SBI promissory note would result in a decline of the
\nbenchmark interest rate of between 1 to 2 percentage points to
\naround 27 percent, from the current level of 29.99 percent.<\/p>\n
"Tomorrow the interest rate (on the one-month SBI) could go
\ndown by between 100 and 200 basis points to around 27 percent.
\nThis is my hunch," she said on Tuesday.<\/p>\n
Miranda said lower interest rates would be helpful in efforts
\nto recapitalize the ailing banking sector and rebuild the
\nbattered real sector.<\/p>\n
"A low interest rate environment will also boost confidence as
\npeople will perceive that an economic recovery is imminent."<\/p>\n
BI has been allowing the benchmark interest rate to decrease
\nsteadily over the past couple of months from over 36 percent in
\nMarch. The interest rate was as high as 70 percent last year when
\nthe economic crisis heightened.<\/p>\n
Several major domestic banks have also continued to lower
\ninterest rates on their time deposits. Bank Bali is now offering
\na 26.5 percent interest rate for its one-month rupiah time
\ndeposit, compared to last week's 28 percent. Interest rates for
\nits 3-month, 6-month and 12-month deposits were also lowered
\nrespectively to 25 percent, 23 percent and 21 percent, compared
\nto previous levels of 27 percent, 25 percent and 24 percent.<\/p>\n
Other banks, including Bank Panin and Bank NISP, have also cut
\ntheir interest rate levels. Bank Panin is now offering a 24
\npercent interest rate for its one-month deposit and 19 percent
\nfor its 12-month deposit. Bank NISP offers 26 percent for a one-
\nmonth deposit and 20 percent for a 12-month deposit.<\/p>\n
Several senior government officials have expressed optimism
\nthat domestic interest rates will drop to as low as 20 percent by
\nthe end of this year.<\/p>\n
The declining trend in interest rates, however, did not cause
\na drop in the exchange rate of the rupiah against the U.S.
\ndollar. The local currency has managed to stabilize at around Rp
\n8,000 to the dollar.<\/p>\n
Inflation<\/p>\n
Miranda attributed the stability to expectations of lower
\ninflation.<\/p>\n
She said inflation could be maintained at its current level
\nbecause the central bank had been able to control the money supply,
\nand concerns over the availability and supply of basic commodities
\nhad subsided.<\/p>\n
Indonesia posted negative inflation in both March and April,
\namounting respectively to 0.18 percent and 0.68 percent.<\/p>\n
"Based on our calculations, the rupiah won't weaken even if we
\nfurther cut the interest rate," she said.<\/p>\n
Miranda said people were expecting the rupiah to continue to
\nrecover.<\/p>\n
"The probability is quite strong for the rupiah to further
\nappreciate. There are many indicators to support this trend."<\/p>\n
She pointed out that the dollar-rupiah swap margin for the
\nnext three months had declined.<\/p>\n
"The Indonesia-Singapore offshore rate has also continued to
\ndecline, indicating that people are expecting the rupiah to
\nimprove."<\/p>\n
She said a bullish local stock market, together with an inflow
\nof foreign funds, and plans by foreign joint-venture banks to
\nstart recapitalizing their local operations were positive
\nindicators for the rupiah.<\/p>\n
"But we still have to be cautious because there are other
\nfactors which can affect the rupiah. We must not be careless,"
\nshe said, pointing to the upcoming June general election and
\nother external factors.<\/p>\n
However, she expected that election jitters would not trigger
\na massive run on the dollar because of perceived gains in holding
\nthe rupiah.<\/p>\n
President B.J. Habibie officially put into force the new
\ncentral bank law on Monday and reappointed Bank Indonesia's board
\nof directors to the newly created board of governors.<\/p>\n
The new central bank law allows BI to decide monetary policy.<\/p>\n
Miranda said the central bank would now have a single focus to
\ncontrol prices in its monetary policy.<\/p>\n
She said that in the past BI was assigned multiple tasks,
\nincluding managing the rupiah and maintaining low interest rates.<\/p>\n
"This was impossible," she said. (rei)<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/bi-anticipates-further-drop-in-interest-rates-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }