BI to continue cutting rates 'as situation allows'<\/p>\n
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
\nThursday that he would continue to cut interest rates if the
\ninflation rate was falling and the rupiah stabilized.<\/p>\n
Speaking to journalists after meeting with President B.J.
\nHabibie, Sjahril said the central bank had cut its one-month
\npromissory notes (SBI) from over 70 percent in early September to
\n64 percent now.<\/p>\n
\"The cut is significant. And as long as the situation allows,
\nwe will continue to lower the rates again, bit by bit, of course,
\nnot in a drastic way,\" the governor said.<\/p>\n
He said the central bank would not reduce rates drastically
\nbecause it could encourage people to withdraw their investments
\nfrom rupiah and speculate on the U.S. dollar again.<\/p>\n
\"What we hope now is that inflation is under control, with
\nenough essential goods (in the market). I think, there is a
\ngreater hope now that inflation will be lower... So, we have
\nmore room to lower interest rates.\"<\/p>\n
The central bank, as required by the International Monetary
\nFund (IMF), moved to an auction procedure for its SBI notes at
\nthe end of July which attracted huge foreign interest in buying
\nrupiah so as to take advantage of the high rates.<\/p>\n
The IMF, which is leading a multi-billion dollar bailout
\nprogram for Indonesia, has prescribed high interest rates as a
\nmeans of boosting the rupiah and restoring stability to the
\neconomy.<\/p>\n
The rupiah has depreciated by some 75 percent from Rp 2,450
\nper U.S. dollar in July last year, to the current rate of Rp
\n10,775 per U.S. dollar and the inflation rate is expected to soar
\nto 100 percent this year.<\/p>\n
Business people and bankers have openly complained about this
\nhigh rate policy. Business people said the high rate policy had
\npractically killed their ventures, and bankers said it had forced
\nbanks to negative spread.<\/p>\n
Similarly, the World Bank said in a report released on Tuesday
\nthat Asia's crisis-hit countries should let interest rates fall
\nand fiscal deficits widen to spur growth.<\/p>\n
Bowing to public demands, the central bank started to lower
\nrates a month ago, by cutting its SBI rates gradually.<\/p>\n
One-month SBI notes auctioned on Wednesday produced a yield of
\n64.74 percent per annum, a drop from 67.43 percent a week ago. A
\ndealer with a private bank said this three-percentage-point drop
\nwas higher than most market players had anticipated.<\/p>\n
Sjahril predicted that the cut in the benchmark rate of Bank
\nIndonesia's one-month promissory notes would lead to a subsequent
\ndrop-off in commercial bank rates.<\/p>\n
Following the gradual cuts in SBI rates, a number of domestic
\ncommercial banks have cut their deposit rates to below 60 percent
\nfor one-month deposits -- much lower than the 67 percent maximum
\ndeposit rate that the central bank is guaranteeing this week.<\/p>\n
Publicly-listed, privately-controlled Bank Bali, for instance,
\ncut its one-month deposit rates to 53 percent per annum, three-
\nmonth rates to 50 percent, six-month to 46 percent and one-year
\nto 45 percent.<\/p>\n
State-owned Bank Rakyat Indonesia also offers relatively low
\ndeposit rates. The bank is offering a 55 percent rate for one-
\nmonth deposits of less than Rp 1 billion and 57 percent for more
\nthan Rp 1 billion one-month deposits.<\/p>\n
Some other banks, however, still offer relatively high rates.
\nBank PSP is offering a one-month deposit rate of 65 percent, Bank
\nBira is offering 62 percent and state-owned Bank Pembangunan
\nIndonesia (Bapindo) has set its one-month rate at 66 percent.
\n(rid\/prb)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-to-continue-cutting-rates-as-situation-allows-1447893297",
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"sponsor": "Okusi Associates",
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