BI to maintain tighter monetary policy

BI to maintain tighter monetary policy

JAKARTA (JP): Bank Indonesia said on Tuesday that it would
continue to adopt a tighter monetary policy over the coming
months amid an inflationary threat from the excess in bank
liquidity.

The central bank said in a statement that the move was aimed
at maintaining price and exchange rate stability.

"The board of governors consider it necessary to pay close
attention to the possibility of pressure from the excessive
banking liquidity which could threaten price and exchange rate
stability," the bank said in a statement issued following a board
of governors meeting.

"The monetary policy over the coming months will remain
directed at absorbing liquidity which is consistent with the
operational target of the monetary policy and maintaining
interest rate stability."

The central bank also said that developments in the world
economy, particularly in the upward trend in interest rates in
developed nations must be closely watched as such a move might
prompt capital outflow to those countries.

Bank Indonesia said that if that happened, Indonesia would
have very limited room in its bid to further lower domestic
interest rates.

The central bank added that a rise in oil prices would ignite
global inflation which in turn would also affect the country's
efforts to reach price stability.

The central bank reiterated that the monetary condition in
February was relatively stable with inflation at 0.07 percent,
and a relatively stable exchange rate of the rupiah at Rp 7,230
to Rp 7,290 per U.S. dollar during the first two weeks of the
month and at Rp 7,330 to 7,400 per dollar in the remaining two
weeks.

Bank Indonesia also said that the benchmark interest rate of
its one month promissory note (SBI) also fell by 14 basis points
to 11.02 percent.

The interest rate on the three-month SBI also fell by 39 basis
points to 11.02 percent.

But the central bank admitted that the lower interest rate had
not prompted banks to provide more lending as the real sector was
still in trouble and banks had not fully recovered their
intermediary role.

"The monetary policy will also be directed toward interest
rate stability which is expected to be able to support the
process of banking and economic recovery." (rei)