BI to continue cutting rates 'as situation allows'

BI to continue cutting rates 'as situation allows'

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
Thursday that he would continue to cut interest rates if the
inflation rate was falling and the rupiah stabilized.

Speaking to journalists after meeting with President B.J.
Habibie, Sjahril said the central bank had cut its one-month
promissory notes (SBI) from over 70 percent in early September to
64 percent now.

"The cut is significant. And as long as the situation allows,
we will continue to lower the rates again, bit by bit, of course,
not in a drastic way," the governor said.

He said the central bank would not reduce rates drastically
because it could encourage people to withdraw their investments
from rupiah and speculate on the U.S. dollar again.

"What we hope now is that inflation is under control, with
enough essential goods (in the market). I think, there is a
greater hope now that inflation will be lower... So, we have
more room to lower interest rates."

The central bank, as required by the International Monetary
Fund (IMF), moved to an auction procedure for its SBI notes at
the end of July which attracted huge foreign interest in buying
rupiah so as to take advantage of the high rates.

The IMF, which is leading a multi-billion dollar bailout
program for Indonesia, has prescribed high interest rates as a
means of boosting the rupiah and restoring stability to the
economy.

The rupiah has depreciated by some 75 percent from Rp 2,450
per U.S. dollar in July last year, to the current rate of Rp
10,775 per U.S. dollar and the inflation rate is expected to soar
to 100 percent this year.

Business people and bankers have openly complained about this
high rate policy. Business people said the high rate policy had
practically killed their ventures, and bankers said it had forced
banks to negative spread.

Similarly, the World Bank said in a report released on Tuesday
that Asia's crisis-hit countries should let interest rates fall
and fiscal deficits widen to spur growth.

Bowing to public demands, the central bank started to lower
rates a month ago, by cutting its SBI rates gradually.

One-month SBI notes auctioned on Wednesday produced a yield of
64.74 percent per annum, a drop from 67.43 percent a week ago. A
dealer with a private bank said this three-percentage-point drop
was higher than most market players had anticipated.

Sjahril predicted that the cut in the benchmark rate of Bank
Indonesia's one-month promissory notes would lead to a subsequent
drop-off in commercial bank rates.

Following the gradual cuts in SBI rates, a number of domestic
commercial banks have cut their deposit rates to below 60 percent
for one-month deposits -- much lower than the 67 percent maximum
deposit rate that the central bank is guaranteeing this week.

Publicly-listed, privately-controlled Bank Bali, for instance,
cut its one-month deposit rates to 53 percent per annum, three-
month rates to 50 percent, six-month to 46 percent and one-year
to 45 percent.

State-owned Bank Rakyat Indonesia also offers relatively low
deposit rates. The bank is offering a 55 percent rate for one-
month deposits of less than Rp 1 billion and 57 percent for more
than Rp 1 billion one-month deposits.

Some other banks, however, still offer relatively high rates.
Bank PSP is offering a one-month deposit rate of 65 percent, Bank
Bira is offering 62 percent and state-owned Bank Pembangunan
Indonesia (Bapindo) has set its one-month rate at 66 percent.
(rid/prb)