Central Bank predicts falling interest rates
JAKARTA (JP): Supported by moderating inflation, interest rates will fall again this week and continue to decline faster in the weeks ahead, Bank Indonesia Governor Sjahril Sabirin said on Tuesday.
Sjahril expressed optimism that despite the interest rate cut, the rupiah should strengthen further toward the government-set target of Rp 7,500 per U.S. dollar in the current fiscal year.
"The (1999/2000) fiscal year has just begun with negative inflation. I think it is not impossible that it will end up with single digit inflation," he said after a meeting with President B.J. Habibie at Merdeka Palace.
Plagued by hyperinflation last year, Indonesia recorded negative inflation during the last two months, minus 0.18 percent in March and minus 0.68 percent in April.
"With inflation rates in the last two months already negative, the fall in interest rates should be faster," Sjahril said.
When asked if the central bank would hasten interest rate cuts, Sjahril said: "If there is a chance to cut rates faster, we will do it. But we must be careful."
He said this week's auction of Bank Indonesia's short-term promissory notes (SBIs) would result in lower interest rates. But he would not predict the size of the cut.
On Wednesday, the central bank is to auction Rp 13 trillion at its weekly SBI auction.
Last Wednesday, Bank Indonesia auctioned Rp 15 trillion (US$1.88 billion) of one-month SBIs at a weighted average interest rate of 33.21 percent per annum, down from 34.54 percent in the previous week.
Interest rates have fallen steadily over the past couple of months, as the central bank seeks to ease pressure on Indonesia's banks and real economy.
On Monday, International Monetary Fund's Asia-Pacific director Hubert Neiss, said the country could be "a little faster" in allowing rates to fall.
Neiss is in town to review Indonesia's economic progress.
The central bank has been successful in allowing rates to fall without harming the rupiah, which has been steady at the 8,000 level against the dollar.
The rupiah closed at 8,085 on Tuesday, off an opening of 7,800 against the dollar.
Some analysts predict the rupiah will remain steady, despite the central bank's move to cut rates, thanks to the current influx of foreign funds into the country's stock market.
Sjahril said he expected the rupiah would stay below the 8,000 level against the dollar, supported by foreign investors' improving confidence on the country's economic recovery process.
He said Indonesia's net foreign-exchange reserves were more than enough to support the local currency.
Net foreign-exchange reserves fell slightly to $15.81 billion on April 23, from $15.86 billion a week before. (prb/rid)