Rates cut again as rupiah, stocks stable

JAKARTA (JP): Bank Indonesia, the central bank, cut rates again yesterday on its short-term papers (SBIs) by 100 and 200 basis points in an effort to lower overall banking interest rates.

Bank Indonesia's managing director Paul Soetopo Tjokronegoro said here yesterday the central bank would continue to gradually cut SBIs rates.

"The interest rate cut was made to meet public demand. As the public want us to lower SBIs rates, we'll do so," Paul said.

The central bank yesterday cut interest rates for one-and two- week SBIs by one percentage point to 18 percent and 20 percent respectively.

The bank also cut the rates for one-and three-month SBIs by two percentage points to 23 percent and 21 percent respectively.

But the bank kept overnight SBIs rates at 15 percent, two-to six-day SBIs at 16 percent, six-month at 12.125 and one-year at 12.75 percent.

Bank Indonesia has cut SBI rates three times this month, bringing down one-month SBI rates from 30 percent to 23 percent.

Bankers welcomed the central bank's move, saying it would help lower the cost of funds.

Bank Rama's president Putu Antara, chairman of Bankers Club Indonesia, said the banking industry should follow up the central bank's move by lowering deposit and lending rates.

"If the deposit rates are lowered, lending rates should be lowered too. That's fair," he said.

Bank Internasional Indonesia president Indra Widjaja said his bank would adjust its lending and borrowing rates with the new SBI rates.

"If the government cuts interest rates, we will also lower ours," he told reporters on the sidelines of a seminar on financial and securities market here yesterday.

Currency dealers and stockbrokers said the rates cut gave another positive signal to markets, with rupiah stabilizing and stock prices gaining ground.

They said the rates cut had been widely anticipated and factored in, providing little stimulation to the market.

The rupiah held on well despite the rates cut, creeping lower to 2,940/2,945 against the U.S. dollar from 2,935 before the cut in a thin trade.

Meanwhile, share prices on the Jakarta Stock Exchange (JSX) gained 0.8 percent on the back of gains in selected stocks led by banks following a further rate cut, stockbrokers said.

The JSX composite index closed up 4.124 points to 550.761, with a total turnover of 253.22 million shares worth Rp 319.25 billion (US$110 million).

An analyst at ANZ Securities, Kevin Evans, said the index managed to increase due to, among others, the interest rate cut and a rebound in some large-capital shares.

"But the market expected the rates would continue to decline to give incentives to portfolio investment," Evans said.

He added the market had also expected the government would follow up its new reform package with, among others, actions to reduce existing trading hurdles in the stock market.

If the government fulfilled its promise in the near-term, investors who were currently sidelined would reenter the market, he said.

Meanwhile, currency dealers said the central bank's move to cut rates further did not weaken the rupiah, but instead investors saw it as a positive step toward a recovery in the Indonesian economy.

They said one-month swap declined on the rates cut while others remained slightly unchanged. One-month swap edged down to 38/45 from 45/48 points and settled at 40/45 in the afternoon.

Two-month was at 80/90, three at 110/115, six at 205/220 and one-year at 380/400 points.

Dealers said the rates cut did not greatly affect the interbank market because the central bank had not increased rupiah liquidity. Nevertheless, rates for interbank call money slightly declined.

Overnight money dropped to 20 percent from 35 percent while longer-term rates were slightly changed. One-week money was at 35 percent and one-month at 30 percent. (aly/rid)