Interest rate rise seen as temporary and localized<\/p>\n
JAKARTA (JP): The current increase in banking deposit rates is
\nonly temporary because its main objective is to curb capital
\noutflows, I Nyoman Moena, a former chairman of the Association of
\nPrivate Domestic Banks (Perbanas), said.<\/p>\n
"The nature of the increase is very temporary and very local,"
\nhe said.<\/p>\n
He added that the rise was due to the immediate cash needs of
\na number of large banks, which are expected to lower the rates
\nagain as soon as they have obtained the necessary funds.<\/p>\n
Dozens of banks started raising their short-term deposit rates
\nby between half and one-and-a-half percentage points earlier this
\nmonth, sparking controversies saying it may affect transactions
\nin local stock markets and lending rates, which could slow
\neconomic growth.<\/p>\n
Private banks such as Bank Windu Kentjana, Bank Dharmala and
\nBank Bira have set their rates at between 10 percent and 11
\npercent per annum on one-month deposits, 13 percent on three-
\nmonth deposits and 13.5 percent and 14 percent for six-month and
\none-year deposits.<\/p>\n
The state-owned banks, including Bank Rakyat Indonesia, Bank
\nBumi Daya, Bank Negara Indonesia and Bank Dagang Negara, raised
\ntheir deposit rates to between 10 and 12 percent.<\/p>\n
Analysts said that the increase is closely related to the
\nrecent move by the Federal Reserve of the United States to
\nincrease its interest rate in a bid to tighten the U.S. monetary
\npolicy and to maintain favorable trends in inflation and thereby
\nsustain economic expansion.<\/p>\n
The Federal Reserve has increased its interest rates four
\ntimes this year, from three percent in February to 4.25 percent
\nin May.<\/p>\n
Banker Eddy Handoko of LippoBank and analyst Rijanto
\nSastroatmodjo told reporters on Wednesday that such a move will
\nhamper Indonesia's fledgling capital market and will prompt
\nbankers to increase lending rates.<\/p>\n
Discouraging<\/p>\n
Immediate effects of such an increase, Handoko said, are
\ndiscouraging business people from taking loans. That will slow
\ndown the pace of development.<\/p>\n
According to Rijanto, the interest rate increase in the U.S.
\nhas already affected the London Inter-Bank Offered Rate (LIBOR)
\nas well as the Singapore Inter-Bank Offered Rate (SIBOR).<\/p>\n
He said that the difference between Indonesia's interest rates
\nand those of the two institutions has narrowed over the last
\nthree months, indicating to local bankers that they should
\nenlarge their deposit rates.<\/p>\n
He added that the difference between LIBOR and the Indonesian
\nrates had decreased from 10 percent in December 1993 to 5.8
\npercent in April 1994.<\/p>\n
"This is sufficient reason for local bankers to raise their
\ndeposit rates," he said.<\/p>\n
Moena was quoted by Antara as saying yesterday that the
\ngovernment will not let higher deposit and lending rates hinder
\nthe economy.<\/p>\n
He said the government may intervene in the money market by
\nopening the flow of various credits, such as loans to small-scale
\nenterprises, or by lowering interest rates on Bank Indonesia
\nCertificates and money market securities. (09)<\/p>",
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