SBI interest policy 'costly, less effective'<\/p>\n
JAKARTA (JP): Bank Indonesia's policy of offering high
\ninterest rates for its SBI promissory notes was costly and could
\nnot be sustained for a longer period, an economist at state-owned
\ninvestment firm PT Danareksa Sekuritas said on Tuesday.<\/p>\n
Raden Pardede said that open market operation by selling SBIs
\nat high rates could not continue forever because the capacity to
\nbear the burden was not unlimited.<\/p>\n
\"Where will the money come from (to pay SBI yields),\" he told
\na group of journalists at his office, adding that the central
\nbank had to allocate up to Rp 3 trillion per month to pay the
\nhigh rates.<\/p>\n
He explained that the central bank had so far been able to
\nmaintain the high SBI rate policy because it might have enjoyed a
\nlucrative business in the foreign exchange market as part of its
\nintervention measures.<\/p>\n
\"But this can't go on forever,\" he said, pointing out that
\nthere was now little room for Bank Indonesia to make huge profits
\nfrom its forex intervention operation.<\/p>\n
He added that other funding alternatives included issuing more
\nSBIs, attaching a skylevel interest rate, and printing new money.<\/p>\n
\"These alternatives are also limited,\" he said, adding that
\nthe last option would lead to a run on the inflation rate.<\/p>\n
Bank Indonesia started weekly auctions on its SBI one-month
\nnote in July absorbing at least Rp 110 trillion in liquidity by
\noffering interest rates of between 65.16 percent and 70.58
\npercent.<\/p>\n
Raden, however, questioned whether the high SBI rate policy
\nwas effective in controlling liquidity because of the central
\nbank's massive liquidity support channeled to troubled commercial
\nbanks since early this year, creating a contradictory loose
\nmonetary condition.<\/p>\n
The central bank has channeled more than Rp 141 trillion in
\nliquidity support to bail out troubled banks with interest rates
\nof more than the SBI rate which even soared by up to 300 percent
\nat one time.<\/p>\n
Bank BCA, for instance, which received Rp 30 trillion in
\nliquidity support was charged some Rp 5 trillion in interest and
\npenalties.<\/p>\n
In addition to the liquidity supports, the central bank has
\nalso thrown back to the market some Rp 3 trillion each month in
\ninterest payments for the SBI note holders.<\/p>\n
The argument that the high SBI rate would also create a
\nsignificant capital inflow to the crisis-hit country was also
\ndoubtful as many believed that the inflow was not more than 10
\npercent, he pointed out.<\/p>\n
He also warned the country's monetary authority that there was
\na limit in pushing up the SBI rate to encourage capital inflow.<\/p>\n
\"There's a turning point. If you offer a 100 percent rate,
\npeople may think that it's junk. This will only cause capital
\noutflow,\" he said.<\/p>\n
Bank Indonesia is expected to auction more than Rp 12 trillion
\nof SBI one-month notes today.<\/p>\n
Last week the auction resulted in an absorption of Rp 11.5
\ntrillion at a weighted average interest rate of 67.43
\npercent.<\/p>\n
The amount, however, accounted for only 50.72 percent of
\nincoming bids, raising speculation that domestic interest rates
\nmight slightly ease this week as the remaining liquidity would be
\nchanneled by commercial banks at lower rates either to interbank
\nmoney markets or businesses. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/sbi-interest-policy-costly-less-effective-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}