Rate drop doesn't indicate softer monetary policy
Rate drop doesn't indicate softer monetary policy
JAKARTA (JP): Bank Indonesia said that this week's slight
decline in the interest rate of Bank Indonesia SBI promissory
notes did not signal the implementation of a more relaxed
monetary policy by the central bank.
Bank Indonesia deputy governor Achjar Iljas said that
inflationary pressure was still a concern to the central bank.
"(The interest rate decline) is only a result of supply and
demand factors. It is too early to say that we will see a further
decline in the interest rate," Achjar told The Jakarta Post on
Thursday, on the sidelines of a meeting with the House of
Representatives special team for the amendment of the central
bank law.
The interest rate on one-month SBI notes was reduced for the
first time in several months to 14.81 percent on Wednesday, down
from 14.85 percent at the previous week's auction.
Bank Indonesia had allowed the interest rate to continue
increasing since the middle of last year amid concern over
inflationary pressure and the weakening local currency.
But the new Bank Indonesia foreign exchange ruling aimed at
curbing speculation against the rupiah by cutting the supply of
rupiah offshore, is expected by the government to be effective in
removing strong pressures on the local unit, thereby allowing for
an easing of interest rates.
Coordinating Minister for the Economy Rizal Ramli said earlier
this week that the new forex ruling would help strengthen and
stabilize the exchange rate of the rupiah against the U.S.
dollar, which in turn would also reduce inflationary pressure
from imported goods and provide room for Bank Indonesia to allow
interest rates to decline.
The government wants a lower interest rate to help revive the
real sector and kickstart a stronger economic recovery.
A further increase in domestic interest rates would also
create a greater burden on the state budget to cover the interest
costs of government bonds issued to help finance the country's
bank recapitalization program.
But Bank Indonesia Governor Sjahril Sabirin said earlier this
month in a press conference unveiling the central bank's 2001
program, that Bank Indonesia would maintain its tight monetary
policy this year in a bid to achieve a low inflation rate between
4 percent to 6 percent.
Sjahril said that low inflation was crucial for ensuring long-
term economic growth.
Sjahril had also said that the central bank would manage its
tight monetary policy in such a way so as not to stifle the
current economic recovery process.
Bank Indonesia is an independent central bank.
Inflation last year reached 9.3 percent, far higher than the
initial government and Bank Indonesia target range of 5 percent
to 7 percent.
The central bank has said that inflationary pressure this year
would remain strong due to the government's plans to increase
fuel and other government controlled prices in a bid to reduce
the state budget's burden of financing price subsidies.
Achjar also said, on a separate occasion on Friday, that Bank
Indonesia could not force banks to provide more lending to the
real sector despite the reasonably large amount of third party
funds laying idle in the banks.
"Bank Indonesia cannot force banks to lend," he told reporters
following the Friday weekly prayer at the central bank
headquarters.
"What is important is to restore a climate conducive to
investment so that banks can resume lending," he added.
Achjar was responding to Rizal's statement on Thursday that he
would meet with the central bank to discuss ways of boosting bank
lending.
Rizal said that the current loan-to-deposit-ratio of most
banks was only 36 percent, which was much lower than the standard
90 percent to 100 percent ratio.
He said that banks must provide more credit to the real sector
to boost economic recovery. (rei)