Easing monetary policy poses risk, BI official says<\/p>\n
SINGAPORE (Reuters): A relaxation of monetary policy at this
\npoint in time posed enormous risks although high interest rates
\nhad not brought about a recovery in the ailing rupiah, an
\nIndonesian central bank official said on Thursday.<\/p>\n
Miranda Goeltom, one of Bank Indonesia's managing directors,
\nsaid in a speech for a conference in Singapore that tight
\nmonetary policy had to continue in line with rising inflation.<\/p>\n
\"Tight monetary policy is needed, and therefore, will be
\ncontinued,\" Goeltom said.<\/p>\n
She said high nominal interest rates and a tight monetary
\nstance would be maintained until the rupiah stabilized at a level
\nreflecting the country's fundamentals.<\/p>\n
On several occasions Indonesia has raised its key interest
\nrates to rein in inflation while keeping the rupiah attractive.<\/p>\n
It had also suspended instruments with expansionary effects
\nsuch as the auction of money market securities (SBPUs).
\nEfforts to loosen monetary conditions would pose \"enormous risks
\nat present,\" Goeltom said.<\/p>\n
Under current conditions, lowering interest rates would make
\nthe rupiah depreciate, inducing fund withdrawals from the banking
\nsystem and fueling inflation, she said.<\/p>\n
Goeltom said the domestic socio-political situation and
\nregional crisis had also weighed on the rupiah.<\/p>\n
She said the government had no intention of implementing
\nforeign exchange controls to remain consistent with its open
\ncapital account policy.<\/p>\n
\"A consistency in implementing an open capital account is
\nextremely vital, particularly in the time of crisis. Changing the
\nsystem towards...so called foreign exchange control is very
\ndangerous,\" Goeltom said.<\/p>\n
She said the word \"control\" should indeed be avoided in the
\nmidst of thin confidence.<\/p>\n
\"It will tend to discourage private capital inflow that is
\nvery much needed as a vote of confidence, thereby deteriorating
\nthe rupiah exchange rates,\" Goeltom said.<\/p>\n
But she said a too free capital account policy would also have
\nunfavorable impacts on the economy.<\/p>\n
Goeltom suggested further tightening of net open positions,
\n\"restriction of forward selling to non-residence, allowance for
\nearning assets (and) prohibition of credit for non-residence\"
\nwere among the aspects worth considering as part of a
\ncomprehensive risk management system.<\/p>\n
She said a policy to increase the repatriation of export
\nproceeds was necessary to increase the supply of hard currency.
\nBut a compulsory surrender of export proceeds could be avoided by
\nunder-invoicing exports or over-invoicing imports.<\/p>\n
Goeltom said such a system could work if direct government
\nfinancial support or a sweetener such as providing cheaper than
\nmarket swap premium rate, or a guarantee of hard currency
\navailability to exporters was given.<\/p>\n
As a possible means to sterilize destabilizing inflows, she
\ntouched on the idea of the imposition of an effective tax rate on
\ninflows, particularly the shorter term money.<\/p>\n
Goeltom said a system of a float within a moving intervention
\nband was one alternative tool to stabilize the rupiah.<\/p>\n
But she said the system was not applicable for Indonesia for
\nnow because it could only be effective if the macroeconomic-
\nsociopolitical situation was stable.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/easing-monetary-policy-poses-risk-bi-official-says-1447893297",
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