Increase in U.S. interest rates gets mixed reactions
Increase in U.S. interest rates gets mixed reactions
JAKARTA (JP): Government and private sector opinions were at
opposite ends of the spectrum yesterday over the half a
percentage point increase in U.S. interest rates.
"Indonesian bankers should not be worried by the move of the
U.S. Federal Reserve to maintain control of inflation for
sustaining its economic expansion," Bank Indonesia Governor J.
Soedradjad Djiwandono told reporters yesterday after lunch with
the German-Indonesian business association, Ekonid.
He said the government will wait for further developments
before making any decisions. "We will not make any quick policy
changes on the banking industry because the U.S. move will not
seriously influence it," he said.
On Tuesday, the Fed raised its discount rate from three
percent to 3.5 percent per year and the interbank federal funds
rate from 3.75 percent to 4.25 percent.
Soedradjad said that some major European banks, such the
German Bundesbank, even lowered their official key discount rates
after the rise in U.S. interest rates.
He said Indonesia's banking industry is now experiencing ideal
conditions, thanks to stable lending and deposit rates for a
relatively long time.
"This situation has indeed prompted the growth of our bank
credits by 20 percent in 1993, as compared to only nine percent a
year earlier," he said.
According to the central bank governor, credit expansion has
happened in all sectors, including for services, manufacturing,
trading, agriculture and mining.
The situation also helped raise the composite index of shares
prices on the Jakarta Stock Exchange to 590 at the end of last
year from 274 at the end of 1992, he said.
Soedradjad said the increase in U.S. interest rates will not
encourage capital outflow from Indonesia.
Affect
Prominent banking analyst Rijanto Sastroatmodjo sees the issue
in a radically different light and believes the Fed's move will
affect Indonesia's banking industry and money markets.
He said that the rate hike will sooner or later push up the
prime rates of the Singapore interbank offered rate (Sibor) and
the London interbank offered rate (Libor) and it will be
imperative for Indonesian banks to adjust their rates upwards to
maintain the attractiveness of rupiah deposits.
He said the central bank should initiate the adjustment by
increasing interest rates on Bank Indonesia Certificates (SBI).
"Increases in interest rates are necessary to prevent capital
outflows," he was quoted by Republika as saying.
Rijanto also predicted that lending rates in the country will
increase in the near future.
Dandossi Matram, a spokesman for the association of Jakarta
securities brokers, said that the Fed's move will hit trading
activities in the country's stock markets.
"I am anxious that investors may shift their capital from the
stock market to the money market," he said. (fhp)