Interest rate may return to 15%, BI says<\/p>\n
JAKARTA (JP): Bank Indonesia deputy governor Miranda Goeltom
\nsaid on the weekend she was upbeat the central bank's benchmark
\ninterest rate would return to its precrisis level of 15 percent
\nwithin the next few months.<\/p>\n
Miranda said that easing inflationary pressure and the
\nstrengthening of the rupiah against the U.S. dollar would give
\nmore space for a further cut in the benchmark interest rate.<\/p>\n
"Over the next one or two months, the interest rate could drop
\nto about 15 percent," she told a media briefing on Friday.<\/p>\n
The benchmark interest rate of Bank Indonesia's one-month SBI
\npromissory notes jumped to as high as 70 percent in August last
\nyear from between 15 percent and 17 percent before the financial
\ncrisis hit the country in the last half of 1997. The SBI rate
\nstarted declining early this year and reached 20.34 percent last
\nweek in line with easing inflationary pressure and the
\nstrengthening of the rupiah.<\/p>\n
Miranda said the recent drop in the interest rate was not
\ndrastic.<\/p>\n
"It's not a drastic drop. It's what the market wants," she
\nadded.<\/p>\n
The sharp cut in the interest rate, however, did not weaken
\nthe exchange rate of the rupiah.<\/p>\n
The rupiah managed to strengthen to Rp 6,500 per U.S. dollar
\nat one point last week, compared to more than Rp 8,100 early this
\nmonth. The rupiah, however, was slightly lower in value during
\nthe last two days of last week, closing at Rp 6,910 to the dollar
\non Friday.<\/p>\n
"It's just normal profit taking," Miranda said.<\/p>\n
"We won't intervene in the market. We're not going to waste
\nour forex reserves," she added.<\/p>\n
Miranda said the central bank would continue to lower the
\nbenchmark interest rate on the back of low inflation.<\/p>\n
The central bank predicted that inflation would be between 10
\npercent to 13 percent by the end of this year, compared to last
\nyear's 77.63 percent.<\/p>\n
"The annualized inflation in the last six months is still
\nbelow 10 percent," Miranda said<\/p>\n
The monthly inflation rate in March, April and May was
\nnegative.<\/p>\n
Government and central bank officials are optimistic that
\ninflation in June would be either negative or zero.<\/p>\n
International Monetary Fund Asia Pacific director Hubert Neiss
\ncalled on the central bank last week to allow domestic interest
\nrates to further decline to advance the country's economic
\nrecovery.<\/p>\n
Indonesia was advised by the fund, which has organized a
\nmultibillion dollar bailout fund for the country, last year to
\nsqueeze money supply and jack up interest rates to curb inflation
\nand strengthen the ailing local currency.<\/p>\n
Separately, a Bank Indonesia economist said the sharp cut in
\nthe benchmark interest rate had not weakened the rupiah, partly
\nbecause of bullishness on the local stock market.<\/p>\n
Halim Alamsyah, head of the economic and monetary policy
\nresearch division at the central bank, explained that the drop in
\ninterest rates had triggered investors to shift their investment
\nportfolio into stocks, and at the same time foreign investors
\ndeemed the interest rate cut would help improve the country's
\neconomic fundamentals.<\/p>\n
He said the inflow of hard currency into the stock market had
\nfurther strengthened the exchange rate of the rupiah.<\/p>\n
"The rupiah strengthened even though the interest rate was
\ncut. It's against conventional theory. But we think its because
\nof the stock market phenomenon," he said at the weekend
\ngathering.<\/p>\n
The local stock market has been on a strong rally following
\nthe country's landmark peaceful June 7 general election.<\/p>\n
The Jakarta Stock Exchange composite index passed the 700
\npoint level at one point last week, a level reached during the
\nprecrisis period in the middle of last year, compared to the 583
\npoint early this month.<\/p>\n
But the JSX index slightly lowered during the past two days of
\nlast week, closing at 673.15 on Friday. (rei)<\/p>",
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