SBI interest rate jumps to 12.33%

JAKARTA (JP): The benchmark interest rate on the one-month Bank Indonesia SBI promissory notes increased to 12.33 percent on Wednesday, the highest level since the end of last year.

Bank Indonesia said in a statement that its Wednesday weekly auction of one-month SBI notes resulted in a weighted average interest rate of 12.33 percent compared to 11.74 percent last week.

The central bank has allowed the benchmark interest rate to increase for eight consecutive weeks.

Bank Indonesia has said that the rate increase is particularly meant to defend the beleaguered rupiah.

The rupiah ended relatively flat at Rp 8,685 per U.S. dollar in late trading on Wednesday compared to Rp 8,688 on Tuesday.

Analysts have said that the interest rate increase had so far failed to strengthen the exchange rate of the rupiah particularly due to ongoing social and political problems at home.

Finance Minister Bambang Sudibyo commented on Wednesday that the rupiah did not react to interest rate alone, but also to other factors including social and political development.

"The rupiah has been fluctuating particularly due to non- economic factors," he told reporters prior to a cabinet meeting.

The rupiah has been under pressure over the past couple of months. The government target for the rupiah this year is at Rp 7,000 per dollar.

Bank Indonesia deputy director Miranda Goeltom said recently that the one-month SBI interest rate should be less than 12 percent by the end of this year if domestic social and political uncertainty subsided.

She indicated that the SBI rate would continue to increase in the run up to the August special session of the People's Consultative Assembly.

Bank Indonesia deputy governor Subarjo Joyosumarto said that the interest rate increase would not do much harm to the government bank restructuring program as it didn't reach the 15 percent level.

But some analysts have said that the interest rate increase would at least inflate government spending to finance the country's bank recapitalization program.

The government bases the yields of its bonds to finance the recapitalization program on SBI rates.

International Monetary Fund Jakarta representative John Dodsworth said on Tuesday that so far there had been "no harm done" by the interest rate increases.

But he warned that the interest rate could continue to move toward a risky level if current market sentiment was not changed.

He said that it's crucial for the government to accelerate the disposal of assets under the Indonesian Bank Restructuring Agency (IBRA) and to restructure the corporate overseas loans to revive market sentiment. (rei)