Downward trend in interest rates likely to continue
Downward trend in interest rates likely to continue
JAKARTA (JP): Bank interest rates have declined sharply over
the past two months and based on the economy's promising outlook,
analysts believe the trend will continue.
Bank Indonesia's benchmark interest rate, which climbed as
high as 70 percent in August last year, has gradually declined as
the economy has improved over the past several months.
This week, the interest rate on Bank Indonesia's promissory
notes fell to an average of 24.65 percent, compared to a 35
percent average in April.
Commercial banks have also significantly lowered the interest
rates on their time deposits, following the falling interest
rates at the central bank.
State Bank Pembangunan Indonesia is offering a 27 percent
interest rate on one-month deposits, 25 percent on three-month
deposits, 24 percent on six-month deposits, 22 percent on one-
year deposits and 18 percent on two-year deposits.
Bank Internasional Indonesia offers interest rates of 26
percent, 25 percent, 24 percent and 22 percent on one-month,
three-month, six-month and one-year deposits, respectively.
The interest rates offered by the banks for savings accounts
are much lower, ranging from 18 percent to 20 percent.
The interest rates on one-month deposits at commercial banks
were as high as 40 percent in January and 35 percent in May.
Financial analysts said interest rates would continue to fall
and could reach their precrisis level of below 20 percent by the
end of this year.
Rupiah stable
The analysts downplayed fears that lower interest rates would
pose a threat to the rupiah, which has stabilized over the last
two months.
"The rupiah will remain stable even if interest rates fell to
between 17 percent and 20 percent by the end of year. There is
fluctuation (of the rupiah) but it is in the normal range,"
financial analyst I Nyoman Moena told The Jakarta Post on
Thursday.
Almost all companies now need rupiah to support their
operations while bankers need rupiah for the bank
recapitalization program, he said.
"They just don't have the luxury of buying dollars because of
the circumstances," Nyoman said when asked if lower interest
rates would encourage investors to switch their investments from
rupiah to the U.S. dollar, which offers less risk.
If the general election runs smoothly and there is no unrest
after the elections, the rupiah will strengthen to 6,000 against
the U.S. dollar from about 8,000 at present, some analysts said.
They shared the view that political factors would influence
the rupiah more than interest rates.
A monetary analyst with a foreign bank said Indonesia learned
during the economic crisis that there was no meaningful
correlation between interest rates and the exchange rate of the
rupiah.
"The interest rate is now significantly lower than its peak at
the 70 percent level in the middle of the crisis. But the
rupiah's value has not significantly improved in this period," he
said.
As long as interest rates do not drop below 20 percent, the
impact on the rupiah will be minimal, he said.
If parties oppose the results of the general election and
riots occur, it could send the wrong signal to the rupiah, the
analysts said.
One analyst said that in the past the rupiah plunged
immediately following riots and unrest.
However, he said the rupiah had become more riot tolerant.
"The exchange rate did not react as sensitively to the last riots
as it did to earlier ones."
"The smooth campaign is proof that previous riots and trouble
were merely engineered by irresponsible parties," he said. (udi)