BI moves to control rate increases<\/p>\n
JAKARTA (JP): Bank Indonesia (BI) decided yesterday to peg
\ndomestic time deposit interest rates to its short-term promissory
\nnote (SBI) rates in a move to control rate increases.<\/p>\n
BI, the central bank, also announced an increase in SBI rates
\nas well.<\/p>\n
BI placed the ceiling for time deposit rates at 1.25 times the
\nSBI rate, compared to the previous link to the Jakarta interbank
\noffered rate (Jibor).<\/p>\n
The formula for calculating the dollar deposit ceiling will
\nremain at 1.5 times the Singapore interbank offered rate (Sibor).<\/p>\n
BI explained that the Jibor pegging system failed to stem a
\nrecent uncontrollable increase in domestic interest rates, which
\nwould negatively affect the economy and the banking system.<\/p>\n
\"The linkage of deposit rates to SBI rates is intended to make
\nthe movement of commercial bank deposit rates more controllable,\"
\nBI managing director Miranda Goeltom said.<\/p>\n
BI acknowledged that the recent increase in deposit rates to
\nbetween 25 percent and 30 percent indicated that banks were
\nwaging an interest rate war.<\/p>\n
Rising interest rates were due to tight bank competition to
\nlure depositors and expectations of high inflation this year, the
\ncentral bank said.<\/p>\n
BI said the government's recent policy to guarantee all bank
\nobligations had made the risks of saving money in each bank more
\nor less the same, and that interest rates were now the major
\nfactor in choosing banks.<\/p>\n
\"The expectation of high inflation rates this year has also
\ninduced banks to adjust their nominal interest rates to maintain
\npositive real interest rates,\" Miranda pointed out.<\/p>\n
The government announced that the monthly inflation rate for
\nFebruary was 12.76 percent, the highest monthly rate of the past
\n30 years, raising concern that the country is heading toward
\nhyperinflation.<\/p>\n
The central bank's SBI rate increases yesterday included a
\nraise in the one-day SBI rate from 30 percent to 40 percent.<\/p>\n
The rates for two days, three to six days, six months and 12
\nmonths increased to 28 percent from 26 percent, 16 percent from
\n14 percent, 35 percent from 30 percent, and 18 percent from 16
\npercent respectively.<\/p>\n
\"SBI rates will be adjusted from time to time in accordance
\nwith BI's monetary policy,\" Miranda said.<\/p>\n
BI kept SBI rates the same for one week, two weeks, one month,
\ntwo months and three months at 25 percent, 24 percent, 22
\npercent, 20 percent and 19 percent respectively.<\/p>\n
Indonesia has been announcing reforms to carry out a massive
\nbank industry restructuring program as part of efforts to deal
\nwith the country's economic crisis. Since last July, the rupiah
\nhas plunged in value about 70 percent against the U.S. dollar
\nfrom a pre-crisis exchange rate of 2,450.<\/p>\n
The government's decision to close down 16 private banks last
\nNovember created widespread depositor panic, prompting many at
\nthe time to divert their savings to stronger banks, especially
\nforeign and state-owned institutions.<\/p>\n
The government move to guarantee all domestic banks from
\nJanuary improved confidence.<\/p>\n
Analysts, however, have said the bank interest rate war was
\ncaused by an urgent need for banks to attract deposits due to
\ntight liquidity and in case the government proceeded with plans
\nto peg the currency to a foreign currency at a fixed exchange
\nrate under the controversial currency board system.<\/p>\n
BI also issued its bank guarantee guidelines yesterday.<\/p>\n
The central bank held a meeting to explain the ruling to all
\ndomestic banks and said it would hold a similar meeting with
\nforeign banks which do business with Indonesian banks. (08)<\/p>",
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