BI moves to control rate increases
BI moves to control rate increases
JAKARTA (JP): Bank Indonesia (BI) decided yesterday to peg
domestic time deposit interest rates to its short-term promissory
note (SBI) rates in a move to control rate increases.
BI, the central bank, also announced an increase in SBI rates
as well.
BI placed the ceiling for time deposit rates at 1.25 times the
SBI rate, compared to the previous link to the Jakarta interbank
offered rate (Jibor).
The formula for calculating the dollar deposit ceiling will
remain at 1.5 times the Singapore interbank offered rate (Sibor).
BI explained that the Jibor pegging system failed to stem a
recent uncontrollable increase in domestic interest rates, which
would negatively affect the economy and the banking system.
"The linkage of deposit rates to SBI rates is intended to make
the movement of commercial bank deposit rates more controllable,"
BI managing director Miranda Goeltom said.
BI acknowledged that the recent increase in deposit rates to
between 25 percent and 30 percent indicated that banks were
waging an interest rate war.
Rising interest rates were due to tight bank competition to
lure depositors and expectations of high inflation this year, the
central bank said.
BI said the government's recent policy to guarantee all bank
obligations had made the risks of saving money in each bank more
or less the same, and that interest rates were now the major
factor in choosing banks.
"The expectation of high inflation rates this year has also
induced banks to adjust their nominal interest rates to maintain
positive real interest rates," Miranda pointed out.
The government announced that the monthly inflation rate for
February was 12.76 percent, the highest monthly rate of the past
30 years, raising concern that the country is heading toward
hyperinflation.
The central bank's SBI rate increases yesterday included a
raise in the one-day SBI rate from 30 percent to 40 percent.
The rates for two days, three to six days, six months and 12
months increased to 28 percent from 26 percent, 16 percent from
14 percent, 35 percent from 30 percent, and 18 percent from 16
percent respectively.
"SBI rates will be adjusted from time to time in accordance
with BI's monetary policy," Miranda said.
BI kept SBI rates the same for one week, two weeks, one month,
two months and three months at 25 percent, 24 percent, 22
percent, 20 percent and 19 percent respectively.
Indonesia has been announcing reforms to carry out a massive
bank industry restructuring program as part of efforts to deal
with the country's economic crisis. Since last July, the rupiah
has plunged in value about 70 percent against the U.S. dollar
from a pre-crisis exchange rate of 2,450.
The government's decision to close down 16 private banks last
November created widespread depositor panic, prompting many at
the time to divert their savings to stronger banks, especially
foreign and state-owned institutions.
The government move to guarantee all domestic banks from
January improved confidence.
Analysts, however, have said the bank interest rate war was
caused by an urgent need for banks to attract deposits due to
tight liquidity and in case the government proceeded with plans
to peg the currency to a foreign currency at a fixed exchange
rate under the controversial currency board system.
BI also issued its bank guarantee guidelines yesterday.
The central bank held a meeting to explain the ruling to all
domestic banks and said it would hold a similar meeting with
foreign banks which do business with Indonesian banks. (08)