BI increases key rate by 0.25 percentage point
BI increases key rate by 0.25 percentage point
JAKARTA (JP): Bank Indonesia, the central bank, yesterday raised the discount rates of its short-term securities by 0.25 percentage point in a fresh move to curb speculation in the money market following the 0.5 point hike in the U.S. interest rates.
The discount rate on the money market securities for a one- week maturity was raised to 15.25 percent, for two-week maturity to 15.50 percent and for a one-month maturity to 16 percent.
The hike was the second after the 0.5 point increase last month made in coping with speculative attacks on the rupiah which were triggered by the financial crisis in Mexico.
Bank Indonesia Governor J. Soedradjad Djiwandono hinted on Thursday that the central bank's discount rates should be adjusted to the Fed rate.
"Such an adjustment is essential to prevent a new wave of currency speculations," he said.
The Federal Reserve raised the short-term U.S. interest rates Wednesday for the seventh time in a year, increasing both the overnight interbank rate and the discount rate by half a percentage point.
"We don't want banks raising cheaper rupiah from Bank Indonesia to buy the dollar," Soedradjad told reporters following the central bank's hearing with the Budgetary Commission of the House of Representatives on Thursday.
The short-term money market securities is one of the central bank's monetary instruments to inject additional liquidity into the economy
Response
The rise in the securities rates received no immediate response from commercial banks, which still maintained their time-deposit rates at a level between 13 and 15 percent yesterday.
Share prices on the local stock exchange also ignored the interest rate hike, further rising on renewed activities of foreign investors.
Securities analysts said that the rise in the interest rates of the Fed and Bank Indonesia had a limited impact on the market as the raise had widely been predicted.
Banking analysts said that its impact on the interest rate on time deposit will also be minimal as the current levels are still competitive enough to curb a capital flight.
At the hearing with the House of Representatives, Soedradjad asked commercial banks to be more cautious in setting interest rates as high rates that are too high could jeopardize the economy.
He said that besides using monetary instruments, the central bank would also continue to use moral persuasion in maintaining the interest rates at a competitive level.
Soedradjad also told the House members that the amount of bad loans in the country's commercial banks rose to 3.99 percent of total credits outstanding, to a total sum of around Rp 8.65 trillion (US$4.02 billion) as of last December.
The central bank governor added that doubtful credits in the banking sector reached 4.77 percent of total credits or around Rp 10.35 trillion, and non-performing loans 3.36 percent or around Rp 7.29 trillion as of last December.
There are now 239 banks operating in Indonesia at present, including seven state banks, 10 foreign banks and 29 joint venture banks.
Soedradjad added that as of September, at least 45 banks failed to adhere to the legal lending limits. (hen)