BI urged to maintain tight money policy

BI urged to maintain tight money policy

JAKARTA (JP): The current strengthening of the rupiah is not
yet sustainable and therefore Bank Indonesia should not overreact
by relaxing its monetary policy, the Indonesian Economists
Association's chairman Marzuki Usman suggested on Thursday.

Marzuki, also minister of tourism, arts and culture, said the
central bank should maintain its current tight monetary policy
until the exchange rate was really stable.

"If Bank Indonesia is lured to lower rates just because of the
current strengthening of the rupiah, and inject funds into the
market again, then in a short time, rupiah will weaken again,"
Marzuki said.

Bank Indonesia has moved to lower the benchmark rates of its
one-month promissory notes (SBIs) from over 70 percent in early
September to below 60 percent now following the rupiah's climb.

He said the rise of the rupiah to between 8,000 and 9,000
against the U.S. dollar now, from over 10,000 in September, was
not caused by domestic factors, but rather by the weakening of
the greenback against global major currencies.

"I think the weakening of the U.S dollar has been engineered
because of the looming global depression which could drag on the
United States," Marzuki was quoted by Antara as saying.

He said the United States was aware of the danger of keeping
the dollar high as it could lead to the recurrence of the global
depression of 1933.

Besides the weakening dollar, the rupiah's strength was also
boosted by market talk of the possible imposition of government
capital controls, Marzuki said.

He said the market should not worry about the capital control
issue, stressing that the government would only improve the
monitoring of capital flows.

The monitoring is needed because "we are now too free. Even in
the U.S., there are records of capital flows," he said. (29)