Benchmark rate flat amid unstable rupiah

Benchmark rate flat amid unstable rupiah

The Jakarta Post, Jakarta

Bank Indonesia's one month SBI promissory notes have entered
their sixth week of flat trading, as the rate closed unchanged
from last week's position of 17.58 percent after Wednesday's
auction, the central bank said.

"We're being prudent. Over the past six weeks, SBI rates have
been flat," Bank Indonesia deputy governor Miranda Goeltom told
reporters.

During this period, the central bank has stabilized SBI rates
at around 17.5 percent at its weekly auctions.

Wednesday's auction raked in 90.4 percent of the total bids,
representing Rp 13 trillion (about US$1.2 billion) absorbed from
the money market.

Keeping rates at current levels has been expected to help
allay pressure on the rupiah, and keep inflation at bay.

This policy, however, comes at the expense of impeding credit
expansion by banks, which is the key to revitalizing the private
sector.

High SBI rates also mean that the government must pay more
interest on domestic bonds carrying coupons tied to the SBI
rates.

Despite the tight SBI rates, rupiah trading has remained
volatile, underscoring concerns that speculators are driving the
market.

Nevertheless, corporate dollar demand for the repayment of
foreign debts and importation of raw materials remains the major
drag on the rupiah.

On Wednesday, the rupiah closed at 10,560 against the U.S.
dollar, a notch up from Tuesday's close at 10,680.

Dealers attributed the rise to profit-taking by investors who
had purchased dollars at cheaper rates.

Miranda said that the central bank would not respond to sudden
changes in the rupiah's position.

"If the rupiah drops we will not respond with monetary
measures that carry long-lasting consequences," she said.

Meaning that a drop in the rupiah would not necessarily entail
higher SBI rates, while a stronger rupiah would not result in
lower SBI rates, she explained.

"The rupiah is not just influenced by Bank Indonesia policy,
but also by non-economic factors. It is these that must be
addressed," Miranda said.

Many have called on the central bank to lower its benchmark
interest rate to help stimulate economic growth.