Bank Indonesia to raise interest rates
Bank Indonesia to raise interest rates
JAKARTA (JP): Bank Indonesia says it will further increase
interest rates to cope with strong inflationary pressures from
rising import costs and higher fuel prices imposed on major
industrial users.
Bank Indonesia deputy governor Miranda Goeltom said the
central bank sought proactive measures to avoid high inflation
rates.
"To prevent inflation from surging, we need monetary responses
now," Bank Indonesia deputy governor Miranda Goeltom told
reporters on the sidelines of a seminar on Bank Indonesia's
annual report for the year 2000.
But she declined to reveal by how much interest rates would be
increased.
On Monday, the central bank increased its overnight
certificate rates by 0.5 of a percentage basis point, to 12.125
percent.
The move was however aimed at soaking the market's rupiah
supply to prevent the currency from being used for U.S. dollar
purchases.
Miranda added, however, that raising interest rates was not
Bank Indonesia's only policy to ease pressure on the rupiah.
She said the government's plan to hike fuel prices had already
triggered a jump in the consumer price index this month.
The government decided on Monday to postpone the plan to
October, except for industrial users who must bear a fuel price
increase to half of the international market price.
Miranda said the steep depreciation of the rupiah had further
added pressure on the inflation rate.
The depreciation of the rupiah, she said, gave rise to
imported inflation, as prices of imported products rose in line
with the weakening of the rupiah.
According to the Central Bureau of Statistics (BPS), the
inflation rate for this month is estimated to hit one percent
compared with 0.87 percent in the month before.
The central bank is forecasting this year's inflation rate to
reach between 4 percent to 6 percent, not including the
inflationary impact of government pricing and revenue policies.
These policies comprise among other things fuel prices, civil
servant salaries and the provincial minimum labor wage.
"Government policies affecting prices and revenues are
estimated to cause an additional inflation of between 2 to 2.5
percentage points," Bank Indonesia said in its annual report.
The report noted that monetary responses to curb inflation
caused by non-monetary pressures might be costly.
These non-monetary pressures could be unexpected fiscal
policies either from the central or regional government, a sharp
depreciation of the rupiah due to non-economic factors, and
security disturbances or natural disasters interrupting food
distribution or production, the report said.
It then warned that applying high interest rates as a response
to these non-monetary factors, might impede economic recovery.
Chairman of the Association of National Private Banks
(Perbanas), Gunarni Soeworo also warned against rising interest
rates too high.
According to her, Bank Indonesia's move to raise interest
rates will force the banking industry to offer higher time
deposit interest rates.
"Banks will consequently be vulnerable to negative spreads and
erosion of capital," she warned.
A bank suffers from negative spread if the cost for paying
interest rates for its depositors is higher than the revenue the
bank earns from its lending rates.
Gunarni said that recapitalized banks holding government bonds
with fixed rates were the most vulnerable ones to Bank
Indonesia's higher interest rates.
The total assets of some recapitalized banks consist of
between 40 percent to 60 percent of government bonds, quite a
portion of which carries a fixed rate of 12 percent, she added.
Gunarni therefore suggested that the government exchange some
of the government fixed bonds with restructured loans currently
held by the Indonesian Bank Restructuring Agency (IBRA).(bkm)