Domestic interest rates must be attractive: Mar'ie
Domestic interest rates must be attractive: Mar'ie
JAKARTA (JP): Minister of Finance Mar'ie Muhammad said
yesterday that domestic interest rates should be attractive
enough to curb capital flight.
"Local banks have to adjust their interest rates to the rate
fluctuation overseas. Otherwise, depositors will withdraw their
money," the minister said in a hearing with Commission VII of the
House of Representatives.
The minister acknowledged, however, that any rise in interest
rates on time deposits will cause an increase in lending rates.
"It is difficult to avoid the impact of the interest rate
fluctuation overseas to the country's open economy," the minister
told the commission, which deals with banking, trade and
cooperatives affairs.
He said that higher interest rates would have a negative
impact on business activities as investors would have higher
costs in their borrowing.
"That's why we are trying hard to lower the inflation rate to
minimize the impact of the interest rate fluctuation overseas,"
the minister added.
The domestic interest rates are not officially pegged to
interest rates overseas. In reality, however, any rise in
interest rates introduced by the U.S. Federal Reserves would
automatically affect rates of the central bank, Bank Indonesia.
The central bank recently raised the discount rates of its
short-term securities by 0.25 percent in a move to curb
speculation in the money market following the 0.5 percent rise in
U.S. interest rates.
The discount rate on money market securities for a one-week
maturity, for example, was raised to 15.25 percent per annum, for
a two-week maturity to 15.50 percent and for a one-month maturity
to 16 percent.
A rise of between 0.25 and 0.5 percent in the central bank's
rates usually push up deposit rates offered by commercial banks
by one percent.
In yesterday's hearing, the minister said that local investors
still consider interest rates an important factor in investing in
banks.
"If interest rates offered by local banks are too low,
depositors will switch their funds to other investment
means," he said.
Consequently, if banks fail to stop the flow of withdrawals,
they will face difficulties as more than 90 percent of their
money comes from depositors.(hen)