BI raises rate for first time in six months

BI raises rate for first time in six months

The Jakarta Post, Jakarta

Bank Indonesia (BI) raised its benchmark one-month SBI promissory note interest rate on Wednesday to 8.53 percent from 8.51 percent a week before, reversing the declining trend since the beginning of the year.

The rise in the rate is the first since the April 2 auction.

The interest rate has fallen 4.46 percentage points since the beginning of the year.

Bank Indonesia sold Rp 25.22 trillion worth of promissory notes, accepting 99.5 percent of the bids.

Analysts said the recent decline of the rupiah against the U.S. dollar and the expectation of higher prices during the Muslim fasting month of Ramadhan, which starts next week, may have pushed the central bank to raise the benchmark interest rate.

Previously, Bank Indonesia officials had said the SBI rate was expected to continue declining for the rest of the year.

The officials said that as long as the rupiah remained stable and inflation stayed in check, the declining trend would continue.

The country posted modest inflation of 2.48 percent during the January to September period, according to the Central Statistics Agency (BPS), which bodes well for the achievement of the government's full-year target of around 6 percent.

Aside from pushing banks to cut their lending rates, the decline in the SBI rate also benefits the state budget in servicing domestic debt -- all of which is in the form of recapitalization bonds, the interest on which is mostly tied to the movement of the central bank's SBI rate.