BI plays it cool on interest rate worries<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Bank Indonesia said on Thursday it did not intend to change its
\npolicy on maintaining relatively low interest rates despite the
\nincrease in the interest rates of its SBI promissory notes a day
\nearlier.<\/p>\n
The benchmark interest rate on one-month SBI notes increased
\nby one-basis point to 7.37 percent during the regular weekly
\nauction on Wednesday compared to 7.36 percent the week before.
\nThe interest rate on three-month SBI notes also rose by two basis
\npoints to 7.31 percent.<\/p>\n
The rate increase created speculation that the central bank
\nwas about to change its stance on domestic interest rates amid
\nincreasing inflationary pressure and rising interest rates in the
\nU.S.<\/p>\n
But director for monetary management division at Bank
\nIndonesia Budi Mulya announced that a less than five-basis point
\nincrease was normal and should reaffirm the central bank's stance
\nof keeping the interest rate \"stable\" despite the various
\neconomic \"shocks\".<\/p>\n
\"We still want to absorb more liquidity from the market, but
\non the other hand Bank Indonesia will try to minimize the impact
\nof the interest rate increase,\" Budi said.<\/p>\n
He pointed out that even with a modest rate increase in the
\nWednesday SBI auction, the central bank had managed to absorb
\nmore liquidity than expected. It absorbed Rp 63.6 trillion as
\ncompared to the target of Rp 61 trillion.<\/p>\n
That meant, he added, that the central bank had been
\nsuccessful in luring more liquidity than it wanted without it
\nhaving much of an impact on its interest rate policy.<\/p>\n
The central bank has been guiding interest rates down over the
\npast two years in a bid to ease the government's burden in
\nservicing its huge domestic debt and spur badly needed bank
\nlending to the corporate sector.<\/p>\n
But rising inflationary pressure (the annualized inflation
\nrate in July accelerated to 7.2 percent from the same month last
\nyear, higher than the government's average target of 6.5
\npercent), the weakening rupiah and rising interest rates in the
\nU.S. had created speculation that Bank Indonesia had no other
\nchoice than to adopt a higher interest rate policy soon to help
\nstabilize prices and defend the local unit as a further hike in
\nU.S. rate could trigger capital flight.<\/p>\n
Bank Indonesia Governor Burhanuddin Abdullah has also
\nrepeatedly said that the central bank would adopt a bias tight
\nmonetary policy, but mainly focus on non-interest rate measures,
\nfor now.<\/p>\n
The measures included a higher reserves requirement for
\ncommercial banks to absorb excess liquidity in the banking
\nsector, which had been blamed for the recent drop in the value of
\nthe rupiah as excess funds had been used to speculate against the
\nlocal unit.<\/p>\n
The central bank is also less worried about increasing
\ninflation, which was caused by rising oil prices and a weakening
\nrupiah.<\/p>\n
According to Bank Indonesia, a 1 percent decline in the value
\nof the rupiah would contribute to a 0.23 percent increase in
\ninflation, while a US$1 per barrel increase in oil prices would
\ncontribute to a 0.05 percent increase in inflation. The rupiah
\nhas weakened by around 4 percent since the start of the year,
\nwhile the average oil price over the past year stands at $34 per
\nbarrel compared to $22 per barrel assumed under the current state
\nbudget.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-plays-it-cool-on-interest-rate-worries-1447893297",
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"sponsor": "Okusi Associates",
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