Lower Fed rate won't cut local rate: BI<\/p>\n
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
\nThursday that the United States Federal Reserve 50-basis-point
\ninterest rate cut would not automatically trigger a decline in
\ndomestic interest rates here.<\/p>\n
\"(The Fed rate cut) would not automatically cause domestic
\ninterest rates to also decline,\" Sjahril told reporters on the
\nsidelines of a gathering with bankers at the central bank's
\nheadquarters.<\/p>\n
\"We will observe the development of the exchange rate of the
\nrupiah within the next few days to determine what action to take
\non the interest rate,\" he added.<\/p>\n
But Sjahril did not provide further details.<\/p>\n
The Fed cut down its federal funds rate to 6.0 percent from
\n6.5 percent on Wednesday in a bid to revive the ailing U.S.
\neconomy.<\/p>\n
Bank Indonesia has been allowing domestic interest rates to
\nincrease in a bid to help stabilize the ailing rupiah and curb
\ninflation.<\/p>\n
The benchmark interest rate of the one-month Bank Indonesia
\nSBI promissory notes continued to increase to 14.73 percent at
\nthe weekly Wednesday SBI auction, compared to 14.53 percent at
\nthe previous week's auction.<\/p>\n
But there has been concern that rising domestic interest rates
\nwould threaten the financial condition of local banks, which have
\njust been recapitalized by the government, and create a heavier
\nburden on the state budget in financing the cost of the bank
\nrecapitalization program.<\/p>\n
The government has issued around Rp 430 trillion (US$45
\nbillion) worth of bonds, which partly carries the variable
\ninterest rate, to help finance the bank recapitalization program.<\/p>\n
Meanwhile, at the same meeting on Thursday, Bank Indonesia
\ndeputy governor Miranda Goeltom said that the central bank would
\nlet market forces decide domestic interest rates.<\/p>\n
She explained that the size of the monetary base would be a
\ncrucial factor in deciding whether or not domestic interest rates
\nwould decline.<\/p>\n
\"If the monetary base declines, then the SBI interest rates
\ncan decline (at the next auction),\" Miranda said, adding that she
\nexpected the monetary base to decline in the coming weeks given
\nthat the recent rise of money in circulation was primarily due to
\nthe year-end festivities.<\/p>\n
Miranda also said that lower domestic interest rates would not
\nnecessarily cause pressure on the rupiah because the exchange
\nrate of the currency was basically driven by supply and demand.<\/p>\n
She said that demand for U.S. dollars would slow down,
\nparticularly as the state-owned oil and gas firm, Pertamina,
\nwould no longer need dollar supplies as big as their requirements
\nat the of last year.<\/p>\n
\"If there is no other uncertainty, the rupiah could
\nstrengthen,\" she said.<\/p>\n
The rupiah dropped to as low as Rp 9,575 per U.S. dollar late
\nlast year, more than a 27 percent drop from the level early last
\nyear, due to a combination of domestic political uncertainty and
\nexternal factors.<\/p>\n
But experts have also said that strong demand for dollars from
\nthe corporate sector, including Pertamina, at the year-end
\nexerted pressure on the local unit. Pertamina needs dollars to
\nrepay foreign debt and finance higher fuel imports. Many
\ncompanies also purchased dollars to repay their overseas debts
\nmaturing at the end of the year.<\/p>\n
Sjahril also expected the rupiah to strengthen if the domestic
\npolitical condition improved.<\/p>\n
\"The rupiah will soon come back to its usual level, and
\nhopefully it will get stronger within the next few weeks,\"
\nSjahril said.<\/p>\n
The government has targeted an average exchange rate level of
\nRp 7,800 per dollar this year.<\/p>\n
Experts said that weakening of the local currency has also
\ncreated inflationary pressure, as domestic production systems are
\nheavily reliant on imported raw materials.<\/p>\n
The Central Bureau of Statistics (BPS) said on Wednesday that
\ninflation in 2000 reached 9.35 percent, compared to the
\ngovernment target of between 5-7 percent.<\/p>\n
But Sjahril said that \"core inflation\" for the year was
\nexpected to be within Bank Indonesia's target of between 3-5
\npercent.<\/p>\n
\"We'll see next week what the precise figure is, but I don't
\nthink it will differ from the target,\" Sjahril said.<\/p>\n
Experts have said that the higher level of inflation
\nexperienced last year was also driven by the increase in fuel
\nprices and other administered prices.<\/p>\n
Core inflation excludes non-monetary factors, such as
\ngovernment administered prices. (tnt\/rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/lower-fed-rate-wont-cut-local-rate-bi-1447893297",
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