Central bank again raises SBI rates to stabilize rupiah

JAKARTA (JP): Bank Indonesia (BI) raised its benchmark short- term promissory notes (SBIs) again for all maturities by a range of 4 to 12 percentage points yesterday to stabilize the rupiah and ease inflationary pressures.

BI governor Sjahril Sabirin acknowledged that using SBI rates to shore up the rupiah would not be completely effective but that it was the best instrument to arrest the currency's fall.

"The rupiah dropped drastically during the last two days to almost 10,000 against the U.S. dollar. And this drop was caused by noneconomic factors. We all know that," he said.

"But BI has to do something to minimize the drop, by raising interest rates again. This is the only effective instrument we have today," he added.

SBI rates

BI raised the overnight SBI rate to 48 percent from 44 percent, two-day SBIs to 49 percent from 45 percent, three-to-six-day SBIs to 50 percent from 46 percent, one-week SBIs to 54 percent from 48 percent, two-week SBIs to 56 percent from 49 percent and one-month SBIs to 58 percent from 50 percent.

The two-month SBI rate was raised to 53 percent from 44 percent, three-month SBIs to 44 percent from 34 percent, six- month SBIs to 34 percent from 23 percent and one-year SBIs to 33 percent from 21 percent.

Sjahril acknowledged that such high interest rates would hurt both the banking sector and businesses in the real sector. But, he said, BI had to pursue the bitter policy to stabilize the rupiah, a prerequisite for economic recovery.

"We understand it will put banks and businesses in a more difficult position as their costs will increase. But we have to choose whether to let the rupiah fall or to raise rates. It's a hard decision," he said.

Sjahril said BI would continue to maintain its high interest rate policy as long as the rupiah remained unstable.

He said the interest rate policy was much more effective than directly intervening in the currency market.

Nevertheless, he did not rule out future currency market interventions to support the rupiah. (rid)