Most bankers unwilling to predict interest rates

Most bankers unwilling to predict interest rates

JAKARTA (JP): Where are interest rates headed in 1999?

A number of bankers interviewed on Thursday were reluctant to
predict which way they are heading, citing uncertainties about
future political developments and a number of economic trends in
the country like the rupiah exchange rate and the rate of
inflation.

Lulu Harsono, president of listed-Bank Pikko, said interest
rates will depend chiefly on political developments in the
country.

"The interest rate trend for 1999 will depend on the
preparations for and the results of the June general election and
other political events," Lulu said.

The rates will also move in line with changes in inflation.
"Deposit rates should ideally be higher than the rate of
inflation. If not, savings will simply be eaten up by inflation,"
he said.

Throughout 1998, depositors saw their savings falling behind,
with inflation officially put at 77 percent for the entire year
while interest rates reached a peak of 60 percent.

Lulu said the government must fight to bring inflation down
before interest rates can be expected to fall from the present
level of between 28 and 40 percent.

He questioned the government's projection that inflation would
fall to 17 percent this year.

"This is so political," Lulu quipped.

He suggested that the government concentrate on stabilizing
the prices of basic food items which have a strong influence over
the consumer price index.

"The government's move to phase out fertilizer subsidies is a
mistake," he said.

Banking analyst I Nyoman Moena said Bank Indonesia's
promissory notes (SBIs), as the benchmark interest rate, should
stay at the current 35 percent level, considering Indonesia's
still volatile political situation.

"The government has to be extra careful if it wants to bring
the SBI rate lower than 35 percent, so as not to put pressure on
the rupiah and thus induce inflation," he said.

Aulia Roza Putera, commissioner of rural bank BPR Sartaprindo
in Jakarta, said that if the government could achieve the target
of bringing inflation down to 17 percent, then interest rates
could be kept in the range of 25 to 35 percent.

This again hinged on political developments in the first six
months of this year, Aulia said. "Anything can happen," he added.

Bank Indonesia has vowed to continue cutting its benchmark
rates in an effort to help the banking industry as well as the
corporate sector in Indonesia.

The current benchmark rate for one-month Bank Indonesia
promissory notes (SBIs) is 35.06 percent, down 0.46 points from
35.52 percent last week and 70 percent in September, 1998.

State-owned Bank Rakyat Indonesia and publicly-listed Bank
Negara Indonesia now both offer a 35 percent interest rate for
one-month deposits, 32 percent for three months, 30 percent for a
six-month period, and 28 percent for one year.

State-owned Bank Pembangunan Indonesia (Bapindo) offers rates
of 40, 36, 31 and 29 percent for one month, three months, six
months and one year respectively.

Bank Central Asia, Indonesia's largest private bank, offers
rates of 39, 35, 31, and 28 percent for one month, three months,
six months, and one year, respectively.

Bank NISP offers much lower rates, 33, 30, 26 and 26 for one
month, three months, six months and one year. (02)