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.