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.