Bank Indonesia cuts interest rates again

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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