BI sees no need for rate hike<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Bank Indonesia for now sees no need to raise its benchmark
\ninterest rate despite the latest increase in the key U.S.
\ninterest rate, central bank Governor Burhanuddin Abdullah said.<\/p>\n
\"So far there seems to be no impact (on the BI benchmark
\nrate). But we'll keep monitoring it,\" he said on Thursday.<\/p>\n
\"(Developments in the) Fed rate will be taken into account.
\nBut it is not the only factor (affecting monetary policy),\" he
\nadded.<\/p>\n
The U.S. Federal Reserve on Tuesday raised its key short-term
\ninterest rate by a quarter percentage point to 1.75 percent, as
\nanticipated. This is the third rate increase in the current year.<\/p>\n
Some analysts have called on Bank Indonesia to increase the
\nbenchmark rate on one-month SBI promissory notes, both to help
\ncurb rising inflationary pressure and to maintain stability in
\nthe rupiah.<\/p>\n
Since May, the local currency has been under renewed pressure
\ndue to a combination of political uncertainty ahead of the Sept.
\n20 presidential election, and rising interest rates in the U.S.
\nwhich has prompted investors to switch from local assets to
\ndollar-based assets.<\/p>\n
Inflationary pressure has been on the rise, with annualized
\ninflation during the past couple of months averaging about 7
\npercent, higher than the government's annual initial target of
\n6.5 percent. The rupiah weakened by nearly 10 percent earlier
\nthis month, making it as one of the worst performing currencies
\nin the region.<\/p>\n
Some observers have noted that Bank Indonesia is reluctant to
\nincrease interest rates because such a move would hurt the
\ncountry's economy, and increase the burden on the cash-strapped
\ngovernment in servicing its domestic debts.<\/p>\n
A higher interest rate environment would also have looked bad
\nduring the election period, particularly for the administration
\nof incumbent President Megawati Soekarnoputri, who has claimed
\nsuccess in stabilizing the country's macroeconomy.<\/p>\n
The central bank has lowered the interest rate on its one-
\nmonth SBI notes to the current level of 7.39 percent, from about
\n9 percent last year. Bank Indonesia previously increased its bank
\nreserve requirements in a bid to absorb excess liquidity, a move
\nsome central bank officials said was sufficient both to help
\ndefend the rupiah and control inflation.<\/p>\n
Bank Indonesia senior deputy governor Miranda Goeltom was
\nquoted earlier as saying the central bank was keeping the option
\nopen to raise interest rates, especially if there was a serious
\ninflationary threat.<\/p>\n
She also said any inflationary pressure during the year-end
\nholidays should not cause concern because this pressure would be
\nshort-term in nature and would eventually ease.<\/p>",
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"sponsor": "Okusi Associates",
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