BI says still more room to lower interest rates

BI says still more room to lower interest rates

MELBOURNE (Dow Jones): Bank Indonesia Director Miranda Goeltom Friday said the current weak level of the rupiah reflects the country's political and social climate, rather than interest rates.

In an interview with Dow Jones Newswires, Miranda said there will be room for the bank to start loosening monetary policy after a bank recapitalization program is completed.

However, she said this will only be possible if "monetary aggregates behave."

Miranda said the weak rupiah is "more related to market sentiment on some political uncertainty."

"Therefore we do believe that after the bank recapitalization there will be some more room for us to start loosening the monetary policy if, and only if, our monetary aggregates behave," she said.

Miranda is in Melbourne to attend a meeting of the Manila Framework Group.

After the closure of Indonesia's "sick banks" and the recapitalization of the big banks, Miranda said, "there won't be any more liquidity support needed."

Already, some banks have repaid a portion of that liquidity support, she noted.

If monetary aggregates "behave," it will allow the central bank to start loosening monetary policy "without having to create exposure or pressure on the exchange rate and the inflation rate."

When asked about the weak level of the rupiah, which is currently quoted at Rp 8,870 rupiah to the dollar, Miranda said "the weak rupiah...is more in the market sentiment...it is not that much related to the interest rates."

The central bank has said it would like to guide interest rates lower at the weekly auctions of one month central bank notes, although the weak rupiah has thrown that into question.

The bank has sought to allow rate to fall slowly in a bid to help the crippled banking sector which has been hard hit by high rates.

The Manila Framework Group comprises finance and central bank officials from Australia, Brunei, Canada, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and the U.S.

Along with the IMF, the World Bank and Asian Development Bank are also represented in the group.

The group first met in November 1997 with the aim of boosting cooperation within Asia to combat the regional financial crisis. The group also aims to develop a surveillance system that would give early warning signals of impending financial crises.