Bank Indonesia cuts again interest rate ceiling

JAKARTA (JP): Bank Indonesia (BI) has again lowered the ceiling for guaranteed interest rates in the wake of a stronger rupiah and softening inflationary pressure.

The central bank announced on Friday that the ceiling for the one-month deposit interest rate for this week was lowered to 63 percent from 64 percent last week, in the wake of a stronger rupiah.

Bank time deposits offering interest rates exceeding the central bank's ceiling rates will not be guaranteed by the government in case the bank collapses.

The central bank also cut the ceiling rates for the three- month, six-month, and 12-month time deposits by a percentage point to 60 percent, 49 percent, and 47 percent, respectively, while the ceiling rate for the 24-month deposit remained at 30 percent.

The central bank announces the ceiling rates every week late on Friday. The cut was the third this month.

The ceiling rates for foreign exchange time deposits were, however, left unchanged.

The maximum overnight rate for the rupiah was lowered to 57 percent from 58 percent, while the maximum overnight rate for U.S. dollar deposits remained at 14 percent.

The country's monetary authority has started to ease its tight policy over the past couple of weeks. The benchmark interest rates for the Bank Indonesia one-month promissory notes (SBI) dropped last week to about 59 percent from more than 70 percent last month.

Domestic commercial banks have also lowered their time deposit rates by an average of eight percentage points to below 60 percent.

Bank Indonesia Governor Sjahril Sabirin said last week that the stronger rupiah and a lower inflation rate had enabled the central bank to lower the rates, and promised that if the rupiah and inflation continued to improve the rates could be lowered again.

The rupiah has been strengthening in the past couple of weeks, closing to Rp 8,200 to the U.S. dollar on Friday, compared to around Rp 12,000 early last month.

Monthly inflation dropped to 3.75 percent in September, compared to more than 6 percent in August.

Sjahril expected inflation to drop to zero percent this month if the political situation remained stable.

He was also optimistic that the rupiah would further improve as he said confidence in the country had returned and the government's economic reform programs were gaining credibility.

A quarter percentage-point cut in the U.S. Federal Reserve interest rate on Thursday would provide an added boost to the already bullish mood toward the local currency, he added. (rei)