BI says monetary condition is improving

Fitri Wulandari, The Jakarta Post, Jakarta

The country's monetary condition has continued to improve, which bodes well for the recovery of the economy, Bank Indonesia says.

The central bank said in a statement following its board of governors meeting on Wednesday, that the upbeat assessment of the monetary picture was based on the recent declining trend in inflation, the stronger rupiah, and the lower interest rate of Bank Indonesia SBI promissory notes.

Bank Indonesia was quoted by Antara as saying that to maintain the situation, the central bank would keep the base money level within its indicative range, while at the same time it would try to gradually and carefully lower interest rates.

The rupiah has surged to a nine-month high of around Rp 8,500 per U.S. dollar at one point this week amid a host of positive news at home and the global weakening of the dollar.

Year-on-year inflation has also been declining during the past couple of months, thanks to the stronger rupiah and lower food prices.

The easing inflationary pressure coupled with the appreciation of the rupiah has allowed Bank Indonesia to guide its benchmark interest rate to 15.16 percent on Wednesday, compared to more than 18 percent late last year.

Bank Indonesia said that inflation would likely ease further in the coming months, while the rupiah would continue to get stronger.

Positive development in the above monetary indicators are seen crucial to support the country's economic recovery process.

The stronger rupiah, easing inflationary pressure, and a lower interest rate environment should be positive for businesses as consumer confidence increased.

The lower interest rate would also help ease the burden of the state budget in covering the coupons of bonds issued to bailout banks in the late 1990s.