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)