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)