BI unlikely to lower rates in line with U.S.
BI unlikely to lower rates in line with U.S.
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
said here yesterday that lower interest rates in the United
States are not likely to affect domestic rates.
"There will be no immediate adjustment. We will have to assess
our domestic economic condition before making any adjustments,"
Soedradjad commented last week.
The Federal Reserve last Thursday cut interest rates for the
first time in three years in a dramatic policy shift away from
fighting inflation and toward promoting economic growth. The Fed
slashed the key federal funds rates, which commercial banks
charge each other for overnight loans, from eight percent to 5.75
percent.
Soedradjad said that Indonesia, as an open economy, is
generally sensitive to external monetary changes.
He said that changes in U.S. interest rates, for example,
often force the central bank to change its interest rates in
order to prevent the dislocation of funds.
"It doesn't mean, however, that we have to adjust ourselves to
all changes overseas," he said after addressing a seminar on
financial and securities markets.
Bank Indonesia, the central bank, has several times this year
raised the interest rate on its Money Market Securities, the
central bank's instrument to control market liquidity, to adjust
to rises in U.S. interest rates.
Yesterday, the average Jakarta Inter-Bank Offered Rates
(JIBOR) for overnight transactions remained stable at 14.8
percent per annum despite the drop in the U.S. rates. The average
rates for JIBOR's one-month and three-month lending also stayed
at last week's positions of, respectively, 17.08 percent and
17.38 percent per annum.
I Nyoman Moena, a former senior central bank official, said
that it would be difficult to push down the local interest rates
at present.
"The local rates will remain in their upward trend. At least,
they will stay at their current levels," he said of the unusual
U.S. rate cut.
He said it was not necessary at the moment to lower domestic
rates because the cut in U.S. rates was insignificant. He added
that domestic inflationary pressures would remain strong during
the next few months.
A cut in the domestic interest rates could jeopardize the
government's efforts to curb inflation, whose rate is feared to
exceed the psychological level of 10 percent this current
calender year, he explained.
"Inflationary pressures remain strong, so we have to maintain
interest rates at a favorable level," he added. (hen)