BI urged to be cautious over rate<\/p>\n
Dadan Wijaksana and Rendi A. Witular, Jakarta<\/p>\n
A gradual, limited increase in central bank interest rate remains
\nthe best solution to strike a balance between easing pressure on
\nthe rupiah and inflation, and keeping banks from raising their
\nlending rates.<\/p>\n
A top banker and analyst told The Jakarta Post that the move
\nby the U.S. Federal Reserve on Wednesday to raise its benchmark
\nrate should not be a reason for Bank Indonesia to adopt an
\naggressive rate policy, as that would harm the economy.<\/p>\n
\"Even under the current rate, demand for loans from the real
\nsector remains far from ideal and is way below capacity. The
\nprospect would be gloomier if the rate were raised,\" President of
\nBank Negara Indonesia (BNI) Sigit Pramono said.<\/p>\n
\"A rate hike will still be tolerable as long as it is below 1
\npercent as we can still cope with that without having to raise
\nlending rates,\" Sigit added.<\/p>\n
He was referring to the central bank's Tuesday announcement
\nthat it was keeping the option of a rate hike open amid mounting
\ninflationary pressure. The Fed's move to lift its key rate to 1.5
\npercent from 1.25 percent could add to the reasons for the bank
\nto raise its rate.<\/p>\n
However, Citigroup economist Anton Gunawan was of the opinion
\nthat it was not yet necessary for Bank Indonesia to aggressively
\nraise its rate.<\/p>\n
\"While Citigroup is maintaining its projection that the U.S.
\nrate will reach 2 percent by year-end, we do not see BI as
\nrapidly following suit.<\/p>\n
\"Even if it had to increase the interest rate, the rise would
\nbe slow and by a small margin,\" Anton said.<\/p>\n
In its latest auction last week, Bank Indonesia raised by one
\nbasis point its one-month interest rate to 7.37 percent from 7.36
\npercent. On Tuesday, it said that in order to help maintain
\ninflation at between 6 percent to 7 percent, the central bank
\nwould not rule out further rate hikes in near future.<\/p>\n
In July, based on the latest report by the Central Statistics
\nAgency (BPS), year-on-year inflation reached the worrying level
\nof 7.2 percent, higher than the government's average rate target
\nof 6.5 percent.<\/p>\n
Anton predicted, however, that while the rupiah's volatility
\n-- partly blamed on the high level of inflation -- was likely to
\nremain at least until after the new government was formed, the
\nlocal currency would start to rebound ahead of year-end and
\ninflationary pressure would abate, he said.<\/p>\n
\"With controlled, full-year inflation, maybe at around 7
\npercent, the SBI will rise only to around 7.75 percent at the end
\nof the year,\" Anton said, adding that such a modest raise would
\nnot force banks to increase their lending rate.<\/p>\n
Chief economist of Deutsche Bank Group Norbert Walter said the
\nhike in the Fed's interest rates would likely push more local
\nfirms to seek cheaper capital from the stock market, as bank
\nlending would eventually become more expensive.<\/p>\n
\"Financing for investment will be expensive as interest rate
\nincreases. We expect there will be more companies selling their
\nshares in the stock market to obtain capital for their
\noperations ... . This is good for the country,\" he said.<\/p>",
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"sponsor": "Okusi Associates",
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