BI sees no need for rate hike
BI sees no need for rate hike
The Jakarta Post, Jakarta
Bank Indonesia for now sees no need to raise its benchmark
interest rate despite the latest increase in the key U.S.
interest rate, central bank Governor Burhanuddin Abdullah said.
"So far there seems to be no impact (on the BI benchmark
rate). But we'll keep monitoring it," he said on Thursday.
"(Developments in the) Fed rate will be taken into account.
But it is not the only factor (affecting monetary policy)," he
added.
The U.S. Federal Reserve on Tuesday raised its key short-term
interest rate by a quarter percentage point to 1.75 percent, as
anticipated. This is the third rate increase in the current year.
Some analysts have called on Bank Indonesia to increase the
benchmark rate on one-month SBI promissory notes, both to help
curb rising inflationary pressure and to maintain stability in
the rupiah.
Since May, the local currency has been under renewed pressure
due to a combination of political uncertainty ahead of the Sept.
20 presidential election, and rising interest rates in the U.S.
which has prompted investors to switch from local assets to
dollar-based assets.
Inflationary pressure has been on the rise, with annualized
inflation during the past couple of months averaging about 7
percent, higher than the government's annual initial target of
6.5 percent. The rupiah weakened by nearly 10 percent earlier
this month, making it as one of the worst performing currencies
in the region.
Some observers have noted that Bank Indonesia is reluctant to
increase interest rates because such a move would hurt the
country's economy, and increase the burden on the cash-strapped
government in servicing its domestic debts.
A higher interest rate environment would also have looked bad
during the election period, particularly for the administration
of incumbent President Megawati Soekarnoputri, who has claimed
success in stabilizing the country's macroeconomy.
The central bank has lowered the interest rate on its one-
month SBI notes to the current level of 7.39 percent, from about
9 percent last year. Bank Indonesia previously increased its bank
reserve requirements in a bid to absorb excess liquidity, a move
some central bank officials said was sufficient both to help
defend the rupiah and control inflation.
Bank Indonesia senior deputy governor Miranda Goeltom was
quoted earlier as saying the central bank was keeping the option
open to raise interest rates, especially if there was a serious
inflationary threat.
She also said any inflationary pressure during the year-end
holidays should not cause concern because this pressure would be
short-term in nature and would eventually ease.