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.