BI introduces new inflation scheme<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
In an attempt to better manage inflation in accordance with
\nIndonesia's improved macroeconomic indicators, the central bank
\nwill implement a new, "forward-looking" inflation target scheme
\nnext month based on interest rates.<\/p>\n
Bank Indonesia (BI) governor Burhanuddin Abdullah said on
\nThursday the new scheme -- dubbed the BI rate -- will replace the
\ncentral bank's previous "backward-looking" scheme based on
\ncontrolling the circulation of the country's base money.<\/p>\n
"The scheme will allow us to have a more stable forecast of
\ninflation, which will be the anchor of all our monetary
\npolicies," BI governor Burhanuddin Abdullah said on Thursday.<\/p>\n
"The BI rate, as well as the rupiah exchange rate, will all be
\nmanaged in the context of maintaining inflation."<\/p>\n
Explaining the scheme further, BI deputy governor for monetary
\naffairs Hartadi A. Sarwono said the BI rate would refer to the
\ninterest rate of the central bank's one-month SBI promissory
\nnotes.<\/p>\n
"The BI rate will be determined in every quarterly meeting of
\nthe BI board of governors," he said, adding that the next meeting
\nwill be held on July 5. "The rate will carry a variation of a 25
\nbasis point margin, with the possibility of revision according to
\ndeveloping circumstances during the board's monthly meeting."<\/p>\n
Hartadi added that the scheme was chosen as an analysis showed
\nthat the relationship between the SBI rate and inflation was now
\nmore closely linked and a more appropriate indicator in view of
\nthe country's recent economic advancement, than that of the base
\nmoney.<\/p>\n
Following the 1997 Asian financial crisis, Indonesia -- on the
\nadvice of the International Monetary Fund -- implemented the
\nbasic "inflation targeting lite" scheme amid uncertainties in the
\ncountry's monetary policies back then.<\/p>\n
As Indonesia's macroeconomic condition and banking industry
\nstabilized, however, the scheme -- which controls inflation by
\nabsorbing excess base money liquidity -- has now become
\nirrelevant as the supply and demand of base money has become more
\ncomplicated and less directly connected to inflation.<\/p>\n
By determining the SBI rate, meanwhile, the interest rates of
\nbanks and the prospects of businesses in the country are expected
\nto be influenced, and in the end the inflation rate.<\/p>\n
BI raised on Wednesday its one-month SBI interest rate seven
\nbasis points to 8.25 percent, from 8.18 percent last week,
\nabsorbing Rp 39.38 trillion (some US$4.1 billion) from the market
\nduring the day's auction of the notes. The three-month SBI rate
\nstill stands at 8.05 percent, from 7.81 percent in May.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-introduces-new-inflation-scheme-1447893297",
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"sponsor": "Okusi Associates",
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