Bank Indonesia foresees further interest rate fall
Bank Indonesia foresees further interest rate fall
BANGKOK (Dow Jones): Bank Indonesia Governor Sjahril Sabirin said on Friday that interest rates still have room to fall and the appropriate level for the rupiah ranges between Rp 6,000 and Rp 7,000 to the dollar.
Speaking to reporters on the sidelines of a seminar, Sjahril said the "tendency was for interest rates to come down."
However, he wouldn't specify just how far rates would fall. He added that interest rates now are low enough for banks to regain a positive interest spread.
Most Indonesian banks have suffered from negative interest spreads since the onslaught of the currency crisis, paying out more in interest on customers' deposits than they were receiving in interest income from borrowers.
Short-term interest rates have fallen steadily, from around 35 percent at the beginning of the year to around 13.8 percent now, as the rupiah has stabilized.
Sjahril predicted that Indonesia could see another month of deflation in July. The country has been experiencing deflation since March this year, after runaway inflation last year that reached almost 80 percent.
Inflation has fallen to around 24 percent and the government and International Monetary Fund predict it could fall to single digits by the end of the year.
The consumer price index for July will be released Monday.
Commenting on the continuing debt-restructuring talks between banks and their debtors, Sabirin said debt-to-equity swaps are a good way to settle the mountains of corporate debt.
He reckons that the precarious capital position of the banks will deter them from writing off loans.
Indonesian companies are saddled with around $70 billion in foreign debt, and very few have reached restructuring deals with their foreign banks.
Sjahril added that he expected economic growth for the 1999 fiscal year ending in March to be between flat and 1 percent, calling higher growth estimates "optimistic."
Sjahril's forecast is lower than the official government forecast of between 1.5 and 2.5 percent for the year.
He said growth expectations of up to 2 percent were optimistic.
"Optimists think growth will be around 2 percent, pessimists say around 0 percent - I'm somewhere in the middle, between zero and 1 percent," Sjahril said.
The International Monetary Fund and the Indonesian government recently raised the growth forecast for the year ending March 31, 2000 to between 1.5 and 2.5 percent, from a range of flat to 2 percent previously.
The government cited the pick-up in output in the first and second quarters, higher agricultural incomes and recovering consumption demand.