BI likely to follow Fed move
BI likely to follow Fed move
JAKARTA (JP): Bank Indonesia, the central bank, is likely to increase the discount rates of its short-term money market securities by a half-percentage point, in line with the rise in U.S. interest rates on Wednesday.
Bank Indonesia Governor J. Soedradjad Djiwandono said yesterday that the interest rate adjustment was essential to forestall speculation on the money market.
"If the rise (in U.S. interest rates) is around a half percentage point, the adjustment will be around the same rate," he told reporters following the central bank's hearing with the Budgetary Commission of the House of Representatives.
The rise is the second in one month, after Bank Indonesia raised its short-term discount rates by a half-percentage point last month to defend the rupiah against speculative attacks by businessmen who were nervous after the financial crisis in Mexico.
The current rate of the one-week money market securities, the central bank's monetary instrument for expanding economic liquidity, was raised to 15 percent from 14.5 percent in the middle of last month following sudden massive purchases of the U.S. dollar.
The discount rate on two-week securities was raised to 15.25 percent from 14.75 percent and the rate on one-month securities was raised to 15.75 percent from 15.25.
Soedradjad said that the central bank's interest rates should be adjusted in line with the rise in the Fed rate so that they would be lower than the inter-bank rates.
Low short term money market securities rates could encourage banks to raise funds from the central bank rather than through the inter-bank money market in order to reap higher gains from the rise in the U.S. interest rates.
"Such a situation is not healthy because it could incite speculation," he added.
The central bank governor said that a 0.5 percentage point increase in its discount rates would not cause a big rise in the interest rates of commercial banks.
Banking analysts, however, estimated that Wednesday's 0.5 percentage point rise in the U.S. Fed discount rate would further push up time-deposit rates to between 16 and 17 percent per annum, from between 13 and 15 percent at present. The rise is expected to further increase lending rates to between 22 and 23 percent from between 18 and 20 percent at present.
Spread
Commission members noted at the hearing that the spread between deposit and lending rates at the commercial banks is still relatively high, ranging from five to six percent.
The House members expressed concern that the high lending rates could slow down Indonesia's economic growth, which is projected to reach at least seven percent this year.
Soedradjad, however, said that the spread, though considered fairly high, had actually dropped to 3.4 percent in September last year from 6.2 percent in 1993.
The central bank would continue to prod banks to further lower the spread through greater efficiency and stronger enforcement of the prudent banking regulations.
Soedradjad added that as of last November, at least 91 percent of the commercial banks had met the minimum reserve requirement, 92 percent had recorded a Loan to Deposit Ratio below the maximum level of 110 percent and around 81 percent had adhered to the legal lending limits.
He said the results of the central bank's intensive efforts to deal with problem loans had also been very encouraging.
"The progress in the settlement of problem loans at state and private banks has been quite promising," he said. "But resolving all the bad credits will take time," he added.
Soedradjad said that the collectibility rate of the country's banks had improved to 87.88 percent of the outstanding credits last December, up from 86.94 percent in September and 85.83 percent in December, 1993.
He noted, however, that the amount of bad debts had increased to 3.99 percent in December, up from 3.88 percent in September.
The increase in the amount of the bad debts was caused by the rise in the number of doubtful loans turning sour, he said. (hen)