BI says recent increase in interest rate is 'temporary'<\/p>\n
JAKARTA (JP): Bank Indonesia senior deputy governor Anwar
\nNasution said on Thursday that the sharp increase in its
\nbenchmark interest rate was \"temporary\" due to the sudden high
\nliquidity demand in the interbank money market.<\/p>\n
Anwar said that several banks suffered funding mismatches and
\nhad to go to the interbank money market to get liquidity, causing
\nthe interest rate to jump.<\/p>\n
\"(The interest rate) in the interbank money market now has
\nstarted to go down again,\" he told reporters on the sidelines of
\na hearing between Bank Indonesian and the House Commission IX on
\nstate budget and banking.<\/p>\n
\"The funding mismatch is a normal thing, nothing to worry
\nabout,\" he said.<\/p>\n
The benchmark interest rate on the one-month Bank Indonesia
\nSBI promissory notes increased to 12.33 percent on Wednesday's
\nauction from 11.74 percent the previous week.<\/p>\n
The interest rate is the highest since the end of last year.
\nThe central bank has allowed the benchmark interest rate to
\nincrease for eight consecutive weeks in a bid to help defend the
\nailing rupiah.<\/p>\n
But the rupiah seems not to be responding to the rate
\nincrease. The rupiah ended relatively flat on Wednesday, but
\nclosed lower at Rp 8,725 per U.S. dollar in late trading on
\nThursday from Rp 8,685 earlier.<\/p>\n
The government target for the exchange rate of the rupiah this
\nyear is Rp 7,000 to the dollar.<\/p>\n
A source at the central bank said that Bank Indonesia had to
\nallow the SBI interest rate to rise at the Wednesday auction
\nbecause the regular buyers of its notes had shifted their funds
\nto the money market.<\/p>\n
The source confirmed that several banks suffered funding
\nmismatches and had to borrow money from the interbank money
\nmarket.<\/p>\n
Meanwhile, Bank Indonesia deputy governor Dono Iskandar told
\nlegislators that every one percent increase in the SBI interest
\nrate would cost the central bank some Rp 1 trillion (US$115.47
\nmillion) per year.<\/p>\n
\"It's costly. And it (interest rate increase) doesn't only
\ncreate a burden to Bank Indonesia but also to the government
\nwhich has to pay interest for the bank recapitalization bonds,\"
\nhe said.<\/p>\n
However, he said Bank Indonesia is still making money by
\nselling its dollars at the current higher exchange rate.<\/p>\n
He expects the SBI rate to go down to less than 12 percent by
\nthe end of the year assuming that the country's social and
\npolitical problems subside.<\/p>\n
Dono explained that the central bank's direct market
\nintervention as well as an increase in SBI rate would not ensure
\na stronger rupiah because other non-economic factors including
\npolitical problems also affect the currency.<\/p>\n
He said that the current weakening of the rupiah against the
\nU.S. dollar was largely caused by non-economic factors.<\/p>\n
Looking ahead, the plans to create a secondary market for
\ngovernment bonds would help reduce the cost of Bank Indonesia's
\nmarket operation.<\/p>\n
He said that if the secondary market had been running well,
\nBank Indonesia would drop its SBI instrument and replace it with
\ngovernment bonds.<\/p>\n
\"We could affect the currency in circulation by buying or
\nselling the bonds,\" he said.<\/p>\n
Asked when the replacement would take place, he said that it's
\ntoo soon to predict. \"Maybe 2002 or 2003 or even later.\"<\/p>\n
He said that the government bond secondary market was expected
\nto start functioning this year after the infrastructure has been
\ncompleted.<\/p>\n
The government has issued more than Rp 321 trillion worth of
\nbonds to help finance the recapitalization program. And expects
\nto issue more bonds worth another Rp 105 trillion.(rei)<\/p>",
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