BI to maintain tight monetary policy<\/p>\n
JAKARTA (JP): Bank Indonesia said on Wednesday it would
\ncontinue its tight monetary policy and allow a further increase
\nin interest rates to help curb inflationary threats and
\nstrengthen the rupiah.<\/p>\n
The central bank said in its second quarter report that the
\ntight money policy was aimed at achieving the base money target.<\/p>\n
Bank Indonesia admitted, however, that the increase in
\ninterest rates could threaten the country's economic recovery
\nefforts.<\/p>\n
\"We realize that the tight policy and higher interest rates
\ncould hinder the nascent economic recovery,\" the statement said.<\/p>\n
Bank Indonesia cautioned that a high interest rate environment
\nwould also inflate the government's bank recapitalization cost
\nand impede the debt restructuring program.<\/p>\n
But the central bank also conceded that a monetary policy
\nwhich tended to be \"accommodative\" would create a higher
\ninflation expectation.<\/p>\n
\"This condition has created a policy dilemma,\" the bank said.<\/p>\n
The benchmark interest rate on one-month Bank Indonesia short-
\nterm promissory notes (SBIs) increased to 12.69 percent at
\nWednesday's weekly auction, compared to 12.33 percent the
\nprevious week. This is the ninth consecutive weekly increase, and
\nthe highest rate level since late last year.<\/p>\n
The central bank initially predicted that the benchmark
\ninterest rate would be between 10 percent and 12 percent by the
\nend of this year.<\/p>\n
But Bank Indonesia has been forced to allow interest rates to
\nincrease over the past two months amid an increase in interest
\nrates by the U.S. Federal Reserve and the weakening of the
\nrupiah.<\/p>\n
The rupiah ended lower at Rp 9,385 per U.S. dollar late on
\nWednesday, compared to Rp 8,960 on Tuesday, which is much lower
\nthan the government target of Rp 7,000 for this year.<\/p>\n
The central bank has said that the current weakening of the
\nrupiah has been largely due to domestic political uncertainty,
\nparticularly in the run up to the General Session of the People's
\nConsultative Assembly in August.<\/p>\n
Bank Indonesia expected interest rates to go down again after
\nAugust, along with lesser pressure on the rupiah.<\/p>\n
The central bank said that despite the current inflationary
\npressure, the 5 percent to 7 percent inflation target for this
\nyear was still within reach as long as political uncertainty
\nsubsided.<\/p>\n
The central bank said that inflation this year would be
\nspurred by the weakening of the rupiah, an increase in
\ngovernment-administered prices and \"supply shocks\" (supply
\ndisruption) if political and security conditions deteriorated.<\/p>\n
The report said that economic growth in the third quarter of
\nthis year was expected to be between 3 percent and 4 percent.<\/p>\n
It said that consumption would continue to be the largest
\ncontributor, while investment growth would still be relatively
\nslack, as in the previous quarter.<\/p>\n
Bank Indonesia added that government spending, which was still
\ncontradictory in the previous quarter, was expected to be
\nexpansive in the third quarter.<\/p>\n
It added that the current account transactions in the third
\nquarter would still be in a surplus condition although it would
\nbe slightly lower compared to the previous quarter due to higher
\nimports.<\/p>\n
Bank Indonesia said that it would continue to let the market
\ndetermine the exchange rate of the rupiah against the dollar.<\/p>\n
The central bank said that market intervention through the
\nselling of its dollars would be done selectively and in a limited
\namount. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-to-maintain-tight-monetary-policy-1447893297",
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