BI increases key rate by 0.25 percentage point<\/p>\n
JAKARTA (JP): Bank Indonesia, the central bank, yesterday
\nraised the discount rates of its short-term securities by 0.25
\npercentage point in a fresh move to curb speculation in the money
\nmarket following the 0.5 point hike in the U.S. interest rates.<\/p>\n
The discount rate on the money market securities for a one-
\nweek maturity was raised to 15.25 percent, for two-week maturity
\nto 15.50 percent and for a one-month maturity to 16 percent.<\/p>\n
The hike was the second after the 0.5 point increase last
\nmonth made in coping with speculative attacks on the rupiah which
\nwere triggered by the financial crisis in Mexico.<\/p>\n
Bank Indonesia Governor J. Soedradjad Djiwandono hinted on
\nThursday that the central bank's discount rates should be
\nadjusted to the Fed rate.<\/p>\n
\"Such an adjustment is essential to prevent a new wave of
\ncurrency speculations,\" he said.<\/p>\n
The Federal Reserve raised the short-term U.S. interest rates
\nWednesday for the seventh time in a year, increasing both the
\novernight interbank rate and the discount rate by half a
\npercentage point.<\/p>\n
\"We don't want banks raising cheaper rupiah from Bank
\nIndonesia to buy the dollar,\" Soedradjad told reporters following
\nthe central bank's hearing with the Budgetary Commission of the
\nHouse of Representatives on Thursday.<\/p>\n
The short-term money market securities is one of the central
\nbank's monetary instruments to inject additional liquidity into
\nthe economy<\/p>\n
Response<\/p>\n
The rise in the securities rates received no immediate
\nresponse from commercial banks, which still maintained their
\ntime-deposit rates at a level between 13 and 15 percent
\nyesterday.<\/p>\n
Share prices on the local stock exchange also ignored the
\ninterest rate hike, further rising on renewed activities of
\nforeign investors.<\/p>\n
Securities analysts said that the rise in the interest rates
\nof the Fed and Bank Indonesia had a limited impact on the market
\nas the raise had widely been predicted.<\/p>\n
Banking analysts said that its impact on the interest rate on
\ntime deposit will also be minimal as the current levels are still
\ncompetitive enough to curb a capital flight.<\/p>\n
At the hearing with the House of Representatives, Soedradjad
\nasked commercial banks to be more cautious in setting interest
\nrates as high rates that are too high could jeopardize the
\neconomy.<\/p>\n
He said that besides using monetary instruments, the central
\nbank would also continue to use moral persuasion in maintaining
\nthe interest rates at a competitive level.<\/p>\n
Soedradjad also told the House members that the amount of bad
\nloans in the country's commercial banks rose to 3.99 percent of
\ntotal credits outstanding, to a total sum of around Rp 8.65
\ntrillion (US$4.02 billion) as of last December.<\/p>\n
The central bank governor added that doubtful credits in the
\nbanking sector reached 4.77 percent of total credits or around Rp
\n10.35 trillion, and non-performing loans 3.36 percent or around
\nRp 7.29 trillion as of last December.<\/p>\n
There are now 239 banks operating in Indonesia at present,
\nincluding seven state banks, 10 foreign banks and 29 joint
\nventure banks.<\/p>\n
Soedradjad added that as of September, at least 45 banks
\nfailed to adhere to the legal lending limits. (hen)<\/p>",
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