BI to adopt tight policy to arrest fall of rupiah<\/p>\n
JAKARTA (JP): The central bank will adopt a tight monetary
\npolicy in a bid to arrest the fall of the flagging rupiah against
\nthe U.S. dollar.<\/p>\n
Bank Indonesia deputy governor Miranda Goeltom said here on
\nThursday that a tighter policy was unavoidable after the United
\nStates increased its interest rates.<\/p>\n
\"We have to do something or the market will punish us,\" she
\ntold reporters on the sidelines of a seminar.<\/p>\n
But she added that it is too early to say whether the central
\nbank would immediately increase its benchmark interest rate.<\/p>\n
She said, however, that the monetary tightening policy would
\ndefinitely slow the central bank's intention to cut the interest
\nrate of Bank Indonesia's (SBI) promissory note to the 10 percent
\nlevel.<\/p>\n
\"The hike in U.S. interest rates would slow down the decline
\nin the SBI rates. So it will not happen as quickly as expected,\"
\nshe said.<\/p>\n
The interest rate of the one-month SBI note is currently at
\n11.04 percent, compared to the record level of 70 percent in the
\nmiddle of 1998 when the economic crisis deepened, and around
\n35 percent in early 1999.<\/p>\n
The central bank has been under pressure to ensure that
\ndomestic interest rates go as low as possible to minimize the
\ninterest costs of government bonds issued to finance the
\ncountry's bank restructuring and recapitalization program.<\/p>\n
The U.S. Federal Reserve on Wednesday raised its main interest
\nrate by a quarter point to 5.75 percent in a bid to cool down the
\noverheating economy. The Fed also indicated that it would
\nincrease rates further.<\/p>\n
Miranda said that the hike in U.S. rates had contributed to
\nthe overall decline in world currencies against the U.S. dollar.<\/p>\n
\"All currencies in the world including the yen, Australian
\ndollar, Singapore dollar and the rupiah are under pressure,\" she
\nsaid.<\/p>\n
Miranda said that another factor affecting the rupiah was the
\npolitical uncertainty created by the dispute between President
\nAbdurrahman Wahid and former armed forces commander Gen. Wiranto,
\nwho is now the Coordinating Minister for Security and Political
\nAffairs.<\/p>\n
Abdurrahman said earlier this week that Wiranto should resign
\nto allow a fair investigation of his alleged involvement in the
\nhuman rights violations in the former East Timor. Abdurrahman
\nmade the statement following rumors that a certain section of the
\nmilitary was planning a coup. Wiranto has rejected the calls for
\nhis resignation.<\/p>\n
The rupiah started the week at around Rp 7,400 per U.S.
\ndollar, and has closed at Rp 7,660, down from Rp 7,520.<\/p>\n
Miranda said that the uncertainty created by the political
\ninfighting between Abdurrahman and Wiranto has discouraged
\nforeign investors from entering the country.<\/p>\n
\"Investors are still adopting a wait and see attitude,\" she
\nsaid. (rei)<\/p>",
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