Interest rate may return to 15%, BI says
Interest rate may return to 15%, BI says
JAKARTA (JP): Bank Indonesia deputy governor Miranda Goeltom
said on the weekend she was upbeat the central bank's benchmark
interest rate would return to its precrisis level of 15 percent
within the next few months.
Miranda said that easing inflationary pressure and the
strengthening of the rupiah against the U.S. dollar would give
more space for a further cut in the benchmark interest rate.
"Over the next one or two months, the interest rate could drop
to about 15 percent," she told a media briefing on Friday.
The benchmark interest rate of Bank Indonesia's one-month SBI
promissory notes jumped to as high as 70 percent in August last
year from between 15 percent and 17 percent before the financial
crisis hit the country in the last half of 1997. The SBI rate
started declining early this year and reached 20.34 percent last
week in line with easing inflationary pressure and the
strengthening of the rupiah.
Miranda said the recent drop in the interest rate was not
drastic.
"It's not a drastic drop. It's what the market wants," she
added.
The sharp cut in the interest rate, however, did not weaken
the exchange rate of the rupiah.
The rupiah managed to strengthen to Rp 6,500 per U.S. dollar
at one point last week, compared to more than Rp 8,100 early this
month. The rupiah, however, was slightly lower in value during
the last two days of last week, closing at Rp 6,910 to the dollar
on Friday.
"It's just normal profit taking," Miranda said.
"We won't intervene in the market. We're not going to waste
our forex reserves," she added.
Miranda said the central bank would continue to lower the
benchmark interest rate on the back of low inflation.
The central bank predicted that inflation would be between 10
percent to 13 percent by the end of this year, compared to last
year's 77.63 percent.
"The annualized inflation in the last six months is still
below 10 percent," Miranda said
The monthly inflation rate in March, April and May was
negative.
Government and central bank officials are optimistic that
inflation in June would be either negative or zero.
International Monetary Fund Asia Pacific director Hubert Neiss
called on the central bank last week to allow domestic interest
rates to further decline to advance the country's economic
recovery.
Indonesia was advised by the fund, which has organized a
multibillion dollar bailout fund for the country, last year to
squeeze money supply and jack up interest rates to curb inflation
and strengthen the ailing local currency.
Separately, a Bank Indonesia economist said the sharp cut in
the benchmark interest rate had not weakened the rupiah, partly
because of bullishness on the local stock market.
Halim Alamsyah, head of the economic and monetary policy
research division at the central bank, explained that the drop in
interest rates had triggered investors to shift their investment
portfolio into stocks, and at the same time foreign investors
deemed the interest rate cut would help improve the country's
economic fundamentals.
He said the inflow of hard currency into the stock market had
further strengthened the exchange rate of the rupiah.
"The rupiah strengthened even though the interest rate was
cut. It's against conventional theory. But we think its because
of the stock market phenomenon," he said at the weekend
gathering.
The local stock market has been on a strong rally following
the country's landmark peaceful June 7 general election.
The Jakarta Stock Exchange composite index passed the 700
point level at one point last week, a level reached during the
precrisis period in the middle of last year, compared to the 583
point early this month.
But the JSX index slightly lowered during the past two days of
last week, closing at 673.15 on Friday. (rei)