BI urged to end high rate policy, public SBI sales
BI urged to end high rate policy, public SBI sales
JAKARTA (JP): The Federation of Private Domestic Banks
(Perbanas) appealed to the central bank on Monday to review its
high interest rate policy and stop selling its short-term
promissory notes (SBI) to the public.
Newly elected Perbanas chairwoman Gunarni Soeworo told a media
luncheon that the interest rate policy had caused many members of
the country's banking industry to fall into the red.
The policy has resulted in a ballooning of the banks'
nonperforming loans and forced the institutions to exercise
negative rate spreads to maintain liquidity and ensure solvency.
"I'm afraid this situation will make it so that our national
banking system could not function accordingly and this would
worsen our national economy," Gunarni said.
Another executive of Perbanas, Agus Martowardoyo, charged the
high interest rate policy pursued by Bank Indonesia since the
floating of the rupiah on Aug. 14, 1997, had practically
destroyed the country's economy, including the banking system.
"The cost of the high interest rate policy is too high for us
to bear. So, we called on the central bank to lower rates
gradually, of course not drastically because it could be
detrimental to our rupiah's exchange rate," Agus said.
Bank Indonesia Governor Sjahril Sabirin has repeatedly
stressed the central bank would lower interest rates only if the
rupiah had strengthened and stabilized at a level reflecting the
country's fundamentals.
Sjahril argued that lowering interest rates at time when
rupiah was still volatile would only weaken the currency further
and cause the inflation rate to soar.
A relaxation in the monetary policy at this point in time
would pose enormous risks, he argued, although high interest
rates had not brought about a recovery in the ailing rupiah.
Sjahril maintained the tight monetary policy had to continue
in line with rising inflation.
On several occasions the central bank has raised its key
interest rates to rein in inflation while keeping the rupiah
attractive.
Perbanas also called on the central bank to abandon the
practice of selling short-term promissory notes directly to the
people.
Gunarni, also president of Bank Niaga, noted that the selling
of SBIs to the public had created direct competition with
commercial banks which had suffered enough from negative spreads.
"BI should actually not compete with us to attract funds from
the public. It is just not fair."
She said she could understand the objective of the BI policy
as an effort to absorb excess rupiah liquidity in the market.
"But the problem is that SBIs are offered at interest rates
higher than the level that we are allowed to offer," she said.
One-month SBI rates offer yields of more than 68.95 percent
per annum, compared to guaranteed bank deposits of 66 percent or
lower.
Bank Bali president Rudy Ramli, a deputy chairman of Perbanas,
also disputed the SBI approach.
"This is unrealistic. By offering SBIs to the public, BI
actually wants to tell the public that they should not put their
money in commercial banks."
He argued that promissory notes, unlike U.S. Treasury Bills,
were a monetary instrument and should not therefore be sold to
the public.
"T-bills in the U.S. are issued by the government and
therefore they are freely traded by the public. But SBI is not
like T-bills. SBI is a monetary instrument, and thus, it should
not be sold freely to the people," he said.
"If BI wants to pursue monetary contraction, it should sell
SBIs to commercial banks only, not to people in general." (rid)