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)