BI rules out another rise in interest rates

JAKARTA (JP): Indonesia's monetary authority ruled out yesterday the possibility of a further increase in interest rates to help the ailing rupiah.

Bank Indonesia (BI) Governor Sjahril Sabirin said that interest rates would not be increased until political turmoil in the country came to an end.

"If the situation remains as it currently is we will keep rates as they are for an unlimited time," Sjahril told journalists following a monthly coordinating meeting on economy, industry, finance and trade.

He explained that raising interest rates to defend the battered rupiah was no longer effective because the value of the currency now hinged on the domestic political situation.

"If the situation improves, we'll intervene," he said, adding that if the political situation stabilized, confidence in the country would return.

Pressure on the rupiah re-emerged following the shooting of four students by security officials during an anti-government demonstration, and the subsequent rioting and looting which claimed hundreds of lives and paralyzed the capital last week.

The currency plunged to around Rp 14,000 against the U.S. dollar on the Jakarta spot market at noon yesterday because of continued worries about the country's political situation. Another massive rally demanding President Soeharto's resignation is expected to be staged in the capital today.

The lowest level so far plumbed by the rupiah was Rp 17,000 against the U.S. dollar in January. In July last year, before the crisis broke, it was trading at around Rp 2,450 to the dollar.

The central bank decision to raise key interest rates helped the rupiah to stabilize at around Rp 7,500 in March. But when BI raised its benchmark promissory note (SBI) rates, for the third time earlier this month, to as high as 58 percent for one-month deposits, the rupiah continued to fall on political worries.

Rice stock

The chief of the National Logistics Agency (Bulog), Beddu Amang said yesterday stocks of rice and cooking oil are sufficient for a three-month supply.

"The stock of basic commodities is enough... we will continue importing rice as well as distributing cooking oil," he told media following the meeting.

He said Bulog would continue its market operation which started in the last couple of days to stabilize prices following the widespread riots and arson in Jakarta and nearby towns last week.

He added that the agency would soon transfer 14,000 tons of cooking oil from Sumatra to Java, to supplement the 6,000 tons already distributed.

The country's worsening political situation threatens the availability of basic commodities already limited by the monetary crisis, letter of credit rejection and a long drought caused by the El Nino weather phenomenon.

In Bangkok, Thai rice and sugar exporters said that they had stopped taking Indonesian LCs following the escalating unrest in Jakarta.

"The situation in the country raises a lot of questions on risks which we are not ready to take," president of the Thai Rice Exporters Association Vorapong Pichpongsa was quoted by Reuters as saying.

"Unless their letters of credit are guaranteed by financial institutions in third countries such as Singapore or Hong Kong, I am afraid we will have to suspend shipments," he said. (rei)