BI interest rate slightly up for second time<\/p>\n
Tony Hotland and Dadan Wijaksana, Jakarta<\/p>\n
The interest rate on one-month Bank Indonesia SBI promissory
\nnotes slightly increased to 7.34 percent from 7.33 percent during
\nits fortnightly auction on Wednesday.<\/p>\n
But the increase, the second in as many auctions, is too small
\nto suggest that the central bank may start raising its benchmark
\nrate in the coming months, as has been suggested by some
\neconomists to help strengthen the embattled rupiah in the face of
\na possible U.S. interest rate hike.<\/p>\n
\"The increase has yet to form a sign that the SBI will be
\nprogressively and consistency increased throughout the year,\"
\nFauzi Ichsan of StanChart said.<\/p>\n
He said the increase in the SBI rate might be caused by rising
\nconcern over soaring inflation due to the weak performance of the
\nrupiah against the dollar.<\/p>\n
The central bank and the Central Statistics Agency have
\nacknowledged that the rupiah's shaky recent showing could lead to
\nhigher-than-expected full-year inflation, which has been targeted
\nat 6.5 percent.<\/p>\n
As for the expected increase in the U.S. benchmark rate, Fauzi
\nsaid this would not have a significant effect on the SBI rate.<\/p>\n
The U.S. monetary authority is scheduled to meet on June 29,
\nand analysts are expecting an increase in its benchmark interest
\nrate from the current record low of 1 percent -- in line with the
\nrecent pickup in the U.S. economy.<\/p>\n
Top officials at the central bank, including senior deputy
\ngovernor Anwar Nasution, have said that a raise of up to 25 basis
\npoints in the Fed fund rate could still be absorbed and therefore
\na subsequent hike in the SBI rate would unlikely be necessary.<\/p>\n
Fauzi said that even if the U.S. hike was more than 25 basis
\npoints, Bank Indonesia could not afford to raise its interest
\nrate drastically due to the impact such a move would have on
\neconomic growth.<\/p>\n
\"The market's prediction is that the raise (in the U.S. rate)
\nwill be between 25 and 50 basis points, but I do not think it
\nwill lead to a drastic and consistent hike in the SBI.<\/p>\n
\"Because if it does, it will hurt the country's share and bond
\nmarkets. Not to mention that it will create a greater burden on
\nthe state budget on (domestic) debt payments,\" he said, referring
\nto the fact that most of interest rates on domestic debt payments
\nare tied to the movement of the SBI.<\/p>\n
Elsewhere, Anwar told reporters the SBI rate would not surpass
\nthe 8 percent mark this year. \"I guess that's the maximum level
\nfor our interest rate (this year).\"<\/p>\n
A higher SBI rate could encourage banks to increase their
\ninterest rates for lending, which would make it more difficult
\nfor the already subdued corporate sector to get loans to finance
\ntheir businesses.<\/p>",
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