Tue, 04 Sep 2001

BI won't rush in easing monetary policy: Miranda

JAKARTA (JP): The central bank will not rush in easing its hard-line monetary stance despite the 0.21 percent month-on-month deflation recorded in August, a senior Bank Indonesia (BI) executive has said.

BI deputy governor Miranda Goeltom said on Monday that the bank would need more convincing data in order to reduce the benchmark interest rate of its one-month SBI promissory notes.

"We need to wait a couple of months to see whether inflationary pressure has indeed receded," she said on the sidelines of a hearing with the House of Representatives Commission IX for financial and development planning affairs.

The interest rate for BI's one-month SBI notes is currently 17.67 percent, a figure that many believe is too high.

The Central Bureau of Statistics (BPS) announced last week that the month-on-month consumer price index (CPI) fell by 0.21 percent in August, making it the first drop in deflation since September last year.

Analysts had predicted that inflationary pressure would continue to weaken in the coming months as the burden from fuel and power hikes in July has subsided.

Raden Pardede, a senior analyst at PT Danareksa Securities, said that the continued weakening of inflationary pressure would prompt BI to lower its interest rate to between 15 percent and 16 percent.

In the latest Letter of Intent (LoI) signed with the International Monetary Fund (IMF), the government is expected to be able to bring the 12-month inflation rate to between 9 percent and 11 percent this year.

"If inflationary pressure from the real sector is still high, an excess of liquidity would become very dangerous for us, and that is what we have to watch out for," Miranda said.

A low interest rate at the bank would result in a high amount of lending and therefore the amount of money in circulation would increase, which could result in a higher inflation rate.

Nevertheless, Miranda said that as the economic condition continued to improve and the rupiah strengthens against the U.S. dollar, the pressure for a high interest rate would gradually recede with whatever adjustments the bank made.

"Any adjustments (to the interest rate) would be slight because there are other factors to be considered," she said.

A dose of fresh air hit the market early last month with the ascent of Megawati Soekarnoputri to the presidential seat on July 23, and the choice of ministers for her new Cabinet.

The rupiah, which had been dawdling at about Rp 11,000 to the dollar the week before, suddenly found itself at the Rp 8,500 to Rp 8,900 levels.

It had dipped slightly last Wednesday to Rp 9,175 which was attributed to high corporate dollar demand as companies paid off their overseas debts.

The rupiah closed higher at Rp 8,970 to the U.S. dollar on Monday's trading, compared to Rp 8,860 on Friday as local companies with foreign debts bought the dollar in heavy trading.

"But we will see this trend gradually ease off, and demand for the dollar will soon no longer put pressure on the foreign exchange market," Miranda said, explaining that most of the companies had by now repaid their foreign debt installments.(tnt/03)