Bank Indonesia won't follow U.S. Fed rate cut move: Official
Bank Indonesia won't follow U.S. Fed rate cut move: Official
JAKARTA (JP): Bank Indonesia (BI) will maintain its tight
monetary policy despite the U.S. Federal Reserve's decision to
cut interest rates by 0.5 percent on Wednesday, central bank
deputy governor Miranda Goeltom said here on Thursday.
Miranda said Bank Indonesia would not loosen its monetary
policy because high inflation still haunted the country's
economy.
"We will not follow (the Fed rate cut). The conditions (in the
U.S. and Indonesia) are very different," she said during a media
conference.
"The trend in (domestic) interest rates will be a flattening.
If there is a few basis points decline, it does not mean that we
are adopting a loose monetary policy," she added.
Miranda said Bank Indonesia would remain consistent in its
cautious monetary policy in order to achieve its inflation target
of 4 percent to 6 percent this year.
The Fed lowered its key funds rate, the rate banks charge each
other for overnight loans, by half a point on Wednesday to 5.50
percent from 6 percent. The Fed also cut the more symbolic
discount rate, the rate the Fed charges banks for emergency
loans, by half a point to 5 percent from 5.50 percent.
It was the second rate cut in January. The Fed earlier cut
interest rates by half a point. The rate cut had been widely
expected as watchers looked to the Fed to move to prop up the
flagging U.S. economy.
The benchmark interest rate on Bank Indonesia's one-month SBI
promissory note declined slightly on Wednesday to 14.74 percent
from 14.81 percent the previous week. This was the second rate
decline in a row.
Bank Indonesia had allowed its benchmark interest rate to move
higher in a bid to curb inflationary pressure and help defend the
ailing rupiah.
But the government has urged the independent central bank to
lower the rate to help the economy grow and to avoid a greater
burden on the government in financing the country's bank
recapitalization program.
The government has issued some Rp 430 trillion in bonds to
finance the recapitalization program. The interest rate on some
of the bonds is linked to the SBI rate.
Bank Indonesia has said it will maintain its tight monetary
policy in such a way that will not stifle economic recovery.
"We'll be extra careful to watch the inflationary trend and
anticipate the possibility of excessive inflationary pressure
ahead," Miranda said.
There has been concern that inflationary pressure will remain
strong this year, particularly because the government plans to
raise fuel prices later in the year.
The central bank failed to achieve its 5 percent to 7 percent
inflation target last year due to a combination of an increase in
fuel prices and a drop in the value of the rupiah against the
U.S. dollar. Inflation in 2000 was 9.3 percent. (rei)