BI won't follow Fed in rate cuts<\/p>\n
Berni K Moestafa, The Jakarta Post, Jakarta<\/p>\n
Reflecting prevailing concerns over high inflation and the
\nweakening rupiah, Bank Indonesia said it would maintain its high
\ninterest rates despite a 50 basis-point rate cut by the U.S.
\nFederal Reserve.<\/p>\n
Bank Indonesia Governor Sjahril Sabirin said on Wednesday that
\nthe bank had no intention of following the Federal Reserves' step
\nin easing liquidity.<\/p>\n
\"We will act cautiously. For now, BI (has decided) not to
\nreduce the interest rate. Instead, we are keeping the rate at the
\ncurrent level,\" Sjahril was quoted as saying by newswire AFX.<\/p>\n
During Wednesday's auction, the Bank Indonesia one month
\npromissory note rate edged slightly up to 17.59 percent from
\n17.57 percent a week earlier.<\/p>\n
The increase followed as the Federal Reserve cut on Tuesday
\n(early Wednesday in Jakarta) its overnight rate for the ninth
\ntime this year to 2.5 percent, the lowest level since 1962.<\/p>\n
Factoring in the aftermath of last month's terrorist attack in
\nthe U.S., which has spooked investors in an already weak economy,
\nthe Fed hinted of more rate cuts to come.<\/p>\n
But throughout the year, Bank Indonesia has distanced itself
\nfrom the U.S. rate cuts, reasoning that domestic factors have
\nmore influence over the local economy.<\/p>\n
By keeping interest rates high, the central bank hopes to ease
\npressure on the rupiah and avoid inflation from building up.<\/p>\n
Experts have also said that lower domestic rates could trigger
\ncapital flight.<\/p>\n
The rupiah has been sinking back to levels last seen when
\npolitical instability began to grip the market early this year.<\/p>\n
Back then, doubts over former President Abdurrahman Wahid's
\nfuture and deteriorating security conditions edged the rupiah
\ncloser to the 10,000 level.<\/p>\n
The unit fell quickly to the 11,000 level after it had
\nbreached the important psychological barrier of 10,000.<\/p>\n
On Wednesday, the local unit closed at 9,915, or slightly
\nhigher than the day before when it had reached 10,025 per dollar.<\/p>\n
However, Governor Sjahril said he expected the rupiah's
\nweakness to be short-lived.<\/p>\n
The central bank governor appeared to blame the weakness more
\non the sluggish global economy. But dealers said security
\nconcerns at home were contributing to the rupiah's woes.<\/p>\n
Of chief concern is the growing anti-U.S. protests by local
\nradical groups that could trigger mass capital flight.<\/p>\n
Plans by the U.S. to retaliate for the Sept. 11 terrorist
\nstrike by attacking the alleged perpetrators in Afghanistan, have
\nprovoked these groups to threaten U.S. interests here.<\/p>\n
As the rupiah weakens, so the inflation rate picks up.<\/p>\n
After recording month-on-month deflation of 0.21 percent in
\nAugust, inflation returned in September when it reached 0.64
\npercent.<\/p>\n
Last month's rise in the consumer price index meant a year-on-
\nyear rate of 12.23 percent, dimming chances of holding inflation
\nfor the year to 9.3 percent as targeted by the government.<\/p>",
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