BI mulls lowering interest rates

BI mulls lowering interest rates
by Tantri Yuliandini

JAKARTA (JP): Bank Indonesia (BI) will allow its benchmark
interest rate to decline if pressure on prices and the rupiah
continue to lessen over the next couple of weeks, central bank
deputy governor Miranda Goeltom said on Thursday.

Miranda said that although Bank Indonesia would retain its
tight money policy for the moment it was possible that reign over
the policy would be considerably lessened in the near future.

"I think if deflation is retained this September and there is
no longer any persistent pressure on the rupiah, then there is
every possibility to relax the monetary policy," she said on the
sidelines of a hearing with the House of Representatives
Commission IX for financial and development planning affairs.

Miranda said that the weakening of the rupiah over the past
three days was only a "hiccup", and not a persistent threat to
the exchange rate.

"Without any persistent pressure on the rupiah, of course the
way toward a relaxed monetary policy will become more open," she
added.

Miranda said that the bank's job was to keep the country from
high inflation, which was also part of the deal with the
International Monetary Fund (IMF). In the latest letter of
intent, the government agreed to bring the 12-month inflation
level to well within the 9 percent to 11 percent target range by
the end of the year.

"But we also need to see if liquidity is a problem at this
time, and we should treat that with care," she added.

Miranda said that the bank's policy to absorb only 53 percent
of the bids offered for Bank Indonesia's one-month SBI promissory
notes at the weekly auction on Wednesday was an indication of the
bank's greater faith in the economy because it gave it greater
liquidity to maneuver.

"That's the hint, that means there is a potential to lower the
interest rate in the weeks to come," she said.

Miranda stressed that the downturn in the rupiah to the U.S.
dollar recently was only temporary and caused by speculators
spinning off rumors that Osama bin Laden, the prime suspect of
the U.S. attack last week, may have been hiding in the country.

There was no rational reason for the rupiah to weaken but that
of the "911" attack in the United States last week, she said,
referring to the attacks which came on Sept. 11.

"The market became a bit worried, followed by those widespread
rumors, which, although unbelievable, could be used to provoke
the market," Miranda said, adding that as the rumor eases, the
rupiah should become more stable within the next few days.

The rupiah has been under pressure over the past three days,
which analysts said was due to a combination of high corporate
dollar demand to repay debts and the uncertainty created by last
week's terrorist attacks on the United States.

The local currency, which had enjoyed strong rates after
Megawati Soekarnoputri's ascension to the presidency, had dropped
to levels of Rp 9,500 this week. The rupiah had been hovering at
Rp 11,000 prior to Megawati's presidency.

The dollar was quoted between Rp 9,425 and Rp 9,470 late
Thursday, much lower than Rp 9,530 to Rp 9,590 late Wednesday.

The U.S. currency touched an intraday high of Rp 9,735 as
local companies bought dollars to repay debts or to pay for
imports.

Analysts said that the higher rupiah rate was caused by
foreign players taking profits on the dollar's recent strength.

Bank Indonesia had also reportedly sold about US$10 million
through brokers to help the local currency.

However, analysts said that the rupiah was also facing
pressure over a possible retaliation by the United States, which
could incite further unrest in Indonesia as it has the world's
largest Muslim population.

Miranda reiterated earlier statements that Bank Indonesia
would take steps to assure that the rupiah would not fall any
further.

"We still have room to intervene, but of course I will not
tell you whether we have or have not done so," she said.(tnt)