Bank Indonesia to maintain tight monetary policy

Bank Indonesia to maintain tight monetary policy

The Jakarta Post, Semarang

Bank Indonesia senior deputy governor Anwar Nasution said on
Friday it was difficult for the central bank to ease its tight
monetary policy for now because of the high growth in base money.

Anwar said Bank Indonesia was concerned that lowering interest
rates could create additional inflationary pressures and weaken
the rupiah.

Speaking at a seminar at the University of Diponegoro, he said
that the central bank had to be extra careful with its monetary
policy as it had to continue to absorb excess liquidity to help
control inflation, but at the same time needed to maintain the
momentum of economic recovery.

There have been growing calls for Bank Indonesia to lower its
benchmark interest rate, currently hovering at 17.57 percent, to
help encourage economic growth, particularly as the world economy
is plunging into a recession.

Central banks of other nations have already started cutting
interest rates, and some are even planning further cuts.

Leaders of the APEC (Asia Pacific Economic Cooperation)
countries gathering in Shanghai, China, are also expected to
agree on a resolution this weekend to adopt pro-growth fiscal and
monetary policies.

Anwar said that base money had reached Rp 115.2 trillion at
the end of September 2001, an increase of Rp 4.6 trillion on the
level at the end of the second quarter.

He said that average growth in base money during the third
quarter was 18.8 percent, compared to the central bank's average
target of 11-12 percent.

He explained that the high base money growth was mainly due to
strong liquidity demand by the public, driven by expectations of
higher prices and continuing domestic political uncertainty.

Bank Indonesia has forecast an inflation rate this year of 10
percent.