BI foresees further fall in interest rates
BI foresees further fall in interest rates
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin
predicted on Thursday a further fall in interest rates, currently
running above 40 percent a year for short term deposit rates.
"The current interest rate is still high especially when
compared to the recently declining inflation rate," he told
reporters after a gathering at the central bank headquarters.
He declined to set any target but predicted "the rate can fall
still further."
The interest rate for the one-month Bank Indonesia promissory
note (SBI) was set at 35.28 percent in the weekly auction on
Wednesday, a slight decline from 35.63 percent in the previous
week's auction. The SBI rate exceeded 70 percent in September.
This slight interest rate decline has raised speculation that
it has already reached bottom, especially after the International
Monetary Fund has warned Indonesia of the danger of a drastic cut
in interest rates.
Sjahril said that although the current interest rate level was
already much lower than the central bank's expectation of
slightly less than 40 percent by the end of this year, the rate
could still go down.
Bank Indonesia director Miranda Gultom indicated recently that
the interest rate could fall to around 30 percent in the first
quarter of 1999.
Sjahril dismissed rumors that the central bank had been under
any pressure from the IMF to decide on a certain interest rate
target.
The monetary authority has embarked on a tight monetary policy
to curb inflation, and strengthen and stabilize the beleaguered
rupiah.
The currency has managed to do both at around Rp 7,500 to the
U.S. dollar during the past couple of months, down from some Rp
17,000 in January.
The rupiah however weakened to Rp 7,900 Thursday morning.
Sjahril dismissed suggestions that this was caused by the
lower interest rates, but attributed the weakening of the
currency to dollar demand from people going for overseas holidays
and from government usage for imports.
Asked whether the banking industry would continue to suffer a
negative spread in interest rates next year, he expected the
problem to considerably lessen in view of a very likely further
decline in interest rates.
He added, however, that stopping the negative spread
altogether would also depend on revival in the battered real
sector.
The country's banking industry has been badly affected by the
negative spread problem in 1998.
Negative spread occurs when the interest rates paid by a bank
on time deposits are higher than the interest rates it charges on
credits.
Experts see the negative spread problem continuing in 1999 and
it will be a major stumbling block to the government's bank
recapitalization program, as it will only eat up banks' capital.
The government has required all banks to have a minimum 4
percent capital adequacy ratio (CAR) by the end of this year.
Under the government bank recapitalization program, banks with a
CAR level of between less than 4 percent and minus 25 percent are
eligible to government funding of up to 80 percent of the capital
requirement. Bank owners have to come up with the remaining 20
percent.
Banks with CAR level of less than minus 25 percent have to
inject fresh money first to fulfill the requirement for the
recapitalization program.
Sjahril said that a merger with sounder banks was another
alternative for these banks. Failure would mean liquidation.
Meanwhile, Bank Indonesia announced on Thursday the maximum
interest rates for bank time deposits and interbank money rates
that would be guaranteed by the government for the period of
between Dec 28, 1998 and Jan.3, 1999. (rei)
Table: Bank Indonesia's interest rate guidelines
Time deposits Max. interest rate Max. interest rate
Rupiah deposit (%) U.S. dollar deposit (%)
------------------------------------------------------------
1 month 43 13
3 months 39 13
6 months 34 13
12 months 32 13
24 months 24 13
Max. interest rate for rupiah interbank money: 35%
Max. interest rate for U.S. dollar interbank money: 7%