Interest rates predicted to remain high next year<\/p>\n
JAKARTA (JP): Interest rates are likely to remain high next
\nyear despite an estimated one percentage point drop in the
\ninflation rate, say analysts.<\/p>\n
Rijanto, a senior banking analyst, said Thursday the prime
\nlending rate would still hover between 20 percent and 21 percent.<\/p>\n
\"The lending rate to non-prime customers will be well above 21
\npercent,\" he said.<\/p>\n
Rijanto said most local banks were not ready to cut their
\nlending rates, not only because of expected tighter liquidity in
\ncoming years but because their operational costs were rising.<\/p>\n
The local banks' cost of funds is projected to increase to 0.6
\npercent next year from 0.4 percent this year, he said, adding
\nthat the cost of funds were increasing because of banks' \"special
\nofferings\" to large depositors.<\/p>\n
\"Such an offering is important nowadays to enable them to keep
\ntheir large depositors,\" said Rijanto, a former senior official
\nof Bank Indonesia, the central bank.<\/p>\n
I Nyoman Moena, another senior banking analyst, said the cost
\nof funds would increase as a natural impact of tight monetary
\nconditions.<\/p>\n
He said the central bank's plan to raise the legal reserve
\nrequirement to 5 percent of bank deposits beginning next year
\nfrom 3 percent would contract the money supply.<\/p>\n
\"As a result, monetary liquidity will become tighter and the
\nimpact is clear, interest rates will be steady,\" he said.<\/p>\n
Nyoman, a former senior official of the central bank, said the
\ndomestic money market would become more nervous next year because
\nof the general elections.<\/p>\n
\"Political uncertainty, combined with the expected tighter
\nconditions mean a more difficult time for the banking sector,\" he
\nsaid. \"Alertness is therefore important in this situation because
\na small mistake could create a big problem.\"<\/p>\n
The most important thing is that banks keep their loan-deposit
\nratios at favorable levels, Nyoman said.<\/p>\n
He said that if the banks' finances were not well balanced
\namid tight liquidity, they would have trouble getting scarce
\nfunds.<\/p>\n
Earlier this month, controversy arose over the country's high
\ninterest rates when State Minister of Research and Technology
\nB.J. Habibie said they were too high.<\/p>\n
He asked the central bank governor to intervene in the market
\nand halve deposit rates to 8 percent per annum from their current
\nlevels around 16 percent.<\/p>\n
Habibie said the deposit rate cut was necessary to stimulate a
\nreduction in lending rates, which are now among the highest in
\nthe world.<\/p>\n
Economists have since said that halving interest rates was
\nimpossible because of high inflation.<\/p>\n
Rizal Ramli, a director of the Econit advisory agency, said
\ndeposit rates could be reduced by a maximum of one percentage
\npoint next year.<\/p>\n
\"The cut is possible due to the estimated decline in the
\ninflation rate by one percentage point to 7 percent this year,\"
\nhe said.<\/p>\n
The inflation rate is estimated to decline to 7 percent this
\nyear from 8.64 percent last year. (hen)<\/p>",
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