BI ups rate to defend rupiah

BI ups rate to defend rupiah

The central bank has once again moved in to help the beleaguered
rupiah -- while at the same time trying to ward off a looming
inflation hike -- as it raised its interest rate to a double-
digit level.

Bank Indonesia (BI) governor Burhanuddin Abdullah announced on
Tuesday the central bank has increased its benchmark BI Rate
again by 50 basis points -- or half a percent -- to 10 percent,
following a 75-point hike to 9.5 percent last week as part of its
monetary policy package to help bolster the rupiah.

The rate hike was also aimed at helping dampen inflation,
which BI said could rise to 9 percent by the end of the year,
ahead of the government's plan to hike domestic fuel prices
again, and the ongoing uncertainty of global oil prices.

"Inflationary pressures will rise if the fuel price hike
happens," he said.

The government is forecasting 8 percent inflation and a 6
percent economic growth this year.

To further limit the rupiah's volatility, BI will also tighten
local forex trading, by prohibiting banks from margin trading the
rupiah against all other currencies, as well as conducting market
intervention through one- to seven-day swap transaction
instruments as of Sept. 15.

Meanwhile, starting on Oct. 1, BI will also require banks to
better maintain their net open position -- the difference between
foreign currency assets and liabilities -- and offer three- to
six-month swap facilities for hedging purposes.

The rupiah has come under pressure as soaring oil prices have
pushed the state budget to the brink of a fiscal instability,
shaking investor confidence in the currency.

The rupiah closed at Rp 10,360 a dollar on Tuesday, down 0.4
percent from its finish the previous day. -- JP