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)