BI rules out another rise in interest rates

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)