BI wants to keep real rate at 2-3%

BI wants to keep real rate at 2-3%

The Jakarta Post, Jakarta

The central bank is to keep the real interest rate within the
current range of 2 percent to 3 percent to help maintain public
interest in depositing funds in banks amid increasing investment
options.

Bank Indonesia senior deputy governor Anwar Nasution said on
Friday that the range, the highest in the region, would be
maintained until the banking sector had fully recovered from the
impact of the economic crisis.

"The (current) 2 percent to 3 percent level is in line with BI
policy. It's higher than those in other ASEAN countries, but
their banks are healthier than ours," Anwar said.

According to Anwar, real interest rate in neighboring nations
stands at 0 percent to 1 percent, with Singapore recording the
lowest rate, 0 percent.

Real interest rate is the margin between the central bank's
benchmark rate -- which, in Indonesia, is Bank Indonesia's
benchmark rate on its one-month SBI promissory notes -- and full-
year inflation rate.

With yearly inflation expected to hover at around 5 percent
this year, as against 5.06 percent last year, Anwar's remarks
mean that the central bank will most likely maintain the SBI rate
at around the current level.

In its last two weeks of auction, the central bank held the
rate at 7.24 percent.

The statement came at a time when the country was seeing a
boom in other portfolio investments, particularly the stock
market, bonds and mutual funds industry.

All these provide the public with options other than saving
their money in banks, especially now that the SBI interest rate
has been at all-time lows.

The mutual funds industry has been growing rapidly over the
past two years. By the end of 2003, the industry was valued at a
staggering Rp 90 trillion, almost double the figure recorded a
year earlier at Rp 46 trillion.

Also rapidly growing is the country's bond market, which saw
bonds -- both issued by the government and corporations -- flood
the market in recent years, making it more liquid and attractive
for investment.

The stock market is no less attractive than the others.
Although the index has been under pressure in recent weeks due to
the elections and poor regional sentiment, the high-flying
Jakarta stock market remains one of the best performers in the
region.