BI keeps key interest rate unchanged

BI keeps key interest rate unchanged

The Jakarta Post/Jakarta

The central bank left on Wednesday its benchmark interest rate
unchanged defying earlier expectations that Bank Indonesia would
push the rate higher amid stronger inflationary pressure and the
rising interest rate trend in the U.S.

The interest rate on the one-month SBI promissory notes was
unchanged at 7.37 percent during a twice-weekly auction of the
notes.

No explanation was given behind the move, but it could well be
seen as a sign that Bank Indonesia's concerns about inflationary
pressure had eased.

The central bank said earlier that it was keeping an interest
rate increase as an option in order to retain monetary stability
amid strong pressure on the rupiah.

The fragile rupiah, which pushed up the prices of imported
goods, helped in part lift the inflation level, as the Central
Statistics Agency (BPS) reported that year-on-year inflation in
July had reached a worrying 7.2 percent, higher than the official
targeted average rate of 6.5 percent.

Bank Indonesia's decision should provide assurance that banks
would not raise lending rates, at least for now, which would
otherwise hurt the economy.

Bankers have mostly opposed the rapid increase in BI's
interest rate, saying it would eventually force them to raise
their interest rates for loans. Some have said that, even if the
central bank was to raise the SBI, it had to be conducted in
phases and at a small margin as well.

A gradual, limited increase in SBI promissory notes remains
the best solution to strike a balance between easing pressure on
the rupiah and inflation, and keeping banks from raising their
lending rates.