Bank Mandiri sees central bank benchmark rate rate at 7.7 percent
Bank Mandiri sees central bank benchmark rate rate at 7.7 percent
Dadan Wijaksana, Jakarta
The central bank benchmark interest rate is projected to hover at
a relatively modest rate of around 7.7 percent by the end of the
year, despite a rising trend in U.S. interest rates and signs of
rising inflationary pressures at home, according to one
economist.
Martin Panggabean, chief economist at Bank Mandiri, said that
inflation would remain relatively mild this year.
He said unless inflation went above 7 percent by the end of
the year, a rapid increase in the interest rate of Bank Indonesia
one-month SBI promissory notes was unlikely.
His statements came a day after the Central Statistics Agency
(BPS) reported that inflation in July (year-on-year) accelerated
to 7.2 percent due to a weakened rupiah and higher education
costs at the start of the school year.
The year-on-year inflation during the past three months had
been on a rising trend. The on-year inflation in June was 6.8
percent.
With the rising inflationary pressure, some now think that the
government inflation target of 6.5 percent for this year will not
be met. Some analysts have even suggested that the central bank
should start increasing its benchmark interest rate to both help
curb the inflationary pressures and defend the rupiah.
However, according to Martin, the nation's core inflation in
July actually stood at a slower pace of 6.1 percent -- something
that should help ease the pressure of a hefty interest rate hike.
The central bank, for the time being, has avoided a hike in
interest rates, but some of its officials indicated that Bank
Indonesia would eventually increase the rates if the market
demands required it.
Currently, Bank Indonesia absorbs excess liquidity in the
banking sector as a monetary tightening measure to defend the
local unit and curb inflation.
The SBI is hovering at 7.34 percent, which is seen as the most
ideal interest rate level under the current economic conditions
and sufficient to maintain interest in rupiah assets and keep the
purchasing power of consumers, a key ingredient for economic
growth during the past couple of years.
A high interest rate environment would slow down economic
growth and create heavier burdens on the government to service
its domestic debts. But the higher rate would surely benefit
banks and their investors as they would obtain higher revenue
from government bonds they hold.
Previously, economic reports from Citigroup and Standard
Chartered Bank also predicted a modest rate in SBI on the
assumption that the U.S. rate hike would be gradual.
The U.S. Federal Reserve is set to convene this week, with
global analysts seemingly unanimous in predicting a rise of about
25 basis points in the U.S. benchmark interest rate from 1.25
percent at present.
The Fed lifted the rate in June for the first time in four
years.
Further hikes are also predicted later this year.
Still, with the rupiah estimated to strengthen, along with
other currencies, against the dollar leading up to year's end as
a result of the huge U.S. trade and current account deficit, and
inflationary pressure would also lessen.
Citigroup predicts that the SBI will be at 7.75 percent at
year's end and StanChart says 7.7 percent.