Local interest rate to stay low despite U.S. rate hike
Local interest rate to stay low despite U.S. rate hike
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin
reaffirmed on Monday that the central bank would not raise
interest rates even if the U.S. Federal Reserve increased its
rate this week.
Sjahril said that an increase in the U.S. interest rate would
not weaken the rupiah because the "margin is still enough" to
keep the local currency attractive.
"I don't think we need to worry right now because the domestic
interest rate is still relatively high," he told reporters on the
sidelines of a closed-door meeting with the House of
Representatives Commission XI on finance and the state budget.
He pointed out that the benchmark interest rate of one-month
Bank Indonesia promissory notes (SBIs) was at 10.95 percent.
The U.S. Federal Open Market Committee will meet on Tuesday to
decide on whether or not to raise short-term interest rates. The
financial market is expecting an increase by 25 basis point to 6
percent.
Bank Indonesia officials recently said that even if overseas
interest rates rose to 6.5 percent, the current domestic interest
rate was still attractive, assuming a 2 percent depreciation rate
of the rupiah.
"There won't be a significant shift in monetary policy,"
Sjahril said.
"The previous increase in the Federal rate also didn't have
much impact on the rupiah," Sjahril said.
The Federal Reserve last increased its interest rate by 25
basis point to 5.75 percent in February in a bid to cool down the
overheating U.S. economy.
The rupiah closed at Rp 7,448 per U.S. dollar on Monday,
compared to Rp 7,455 on Friday.
Bank Indonesia has been determined to keep domestic interest
rates as low as possible in a bid to help keep the budgetary cost
of the government's bank recapitalization program within a
manageable level.
The government has issued bonds to recapitalize and
restructure the country's ailing banking sector. The interest
costs of the bonds will be covered by the state budget.
A low interest rate environment is also crucial to help
businesses restructure bank loans which mostly have turned sour.
Elsewhere, Sjahril said that Bank Indonesia had discussed with
the House plans to reduce the number of the central bank's deputy
governors from seven to six.
He did not provide details, but legislators said that Bank
Indonesia was asked to reduce the number of its deputies because
the central bank no longer manages liquidity support and other
forms of subsidized credit to the banking sector following the
independency status Bank Indonesia obtained by virtue of the new
Central Bank Act last May.
Sjahril said that he had also proposed three candidates to the
House to replace outgoing deputy governor Iwan R. Prawiranata,
whose term will expire in May.
The three candidates are deputy governor Aulia Pohan (whose
position is to be terminated) and Bank Indonesia senior officials
Burhanuddin Abdullah and C. Harinowo. (rei)