Bank Indonesia cuts interest rates again

HONG KONG (JP): Bank Indonesia for the fourth time lowered yesterday its benchmark interest rates for one to three-month papers by one to two percentage points to a range of 17 percent and 21 percent from 18 percent to 23 percent.

Bank Indonesia's Governor Soedradjad Djiwandono, here for the IMF and World Bank annual meetings, told reporters that the rates reduction would help the economy deal with the new situation after the floating of the rupiah on Aug. 14.

Soedradjad said the interest rates on one, two week, one and three month SBI papers were cut to 17 percent, 19 percent, 21 percent and 19 percent respectively.

"This measure is part of the broad framework of economic policy taken to cope with the new realities after the floating of the rupiah," Soedradjad added.

The central bank raised its benchmark interest rates to as high as 30 percent on Aug. 19 to curb massive speculative attacks on the rupiah after its free floating.

He said yesterday's cut in interest rates was made after a teleconference with his staff at Bank Indonesia in Jakarta.

"I have also consulted this measure with the Minister of Finance Mar'ie Muhammad," Soedradjad said. Minister Mar'ie is also attending the IMF-World Bank meetings in Hong Kong.

The government promised to ease the tight monetary policy on Sept. 3 as part of a new package of measures introduced to help stabilize the rupiah to its market equilibrium.

Other reform measures include a reduction in government investment spending by rescheduling several projects and further reforming the banking sector to edge out unsound, insolvent banks.

"We will help solvent, well-managed banks to weather the tight monetary situation but will force insolvent ones to merge or to get new investors," he added.

But those who cannot be bailed out with these measures will be liquidated according to the existing laws, Soedradjad said.

In Jakarta, the rupiah weakened yesterday but foreign exchange dealers said the drop was not a result of the rates cut.

Spot rupiah broke through the 3,000 level against the U.S. dollar and closed at 3,028/35 from an opening of 2,990/3,000. The rupiah touched a day low of 3,040.

"I believe the rupiah's fall was not because of the rates cut but was instead weighed down by drastic falls in the Malaysian ringgit," a foreign exchange dealer said.

Stockbrokers said the central bank's rates cut helped the Jakarta stock market resist bearish regional sentiment.

Share prices on the Jakarta Stock Exchange gained 0.2 percent, with the composite index closed up 4.522 points at 535.601.

Turnover totaled 326.7 million shares valued at Rp 491.21 billion (US$162.7 million).

Brokers said the upward momentum, amid regional stock falls, was sustained by the interest rate cut, which would make investment in equity more attractive.

But an analyst from Arab Malaysian Capital Securities attributed yesterday's increase in share prices to a technical rebound.

"The entire market remains bearish and will continue to stay so until the presidential election next year," the analyst said. (aly/rid/vin)

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