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11695
Sun, 07/06/2008 - 23:57
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News Focus: BI AGAIN RAISES KEY RATE AMID HIGH INFLATION
By Suharto
Jakarta, July 7 (ANTARA) - Bank Indonesia (the central bank/BI) decided last Thursday to raise its benchmark interest rate by 25 basis points to 8.75 percent in a widely-expected move to curb the accelerating inflation in Southeast Asia's biggest economy.
"Inflationary pressure in 2008 was particularly the result of fuel oil and food price hikes," BI Governor Boediono said in a press conference.
BI noted that the inflationary pressure also resulted from rising demands due to a rise in the amount of bank loans and money supplies until the second quarter of this year.
Therefore, the central bank considered it necessary to raise its key rate to prevent the second round effect of fuel oil and food price hikes on the prices of other commodities, he said.
BI said earlier it expected the inflation to peak in June following the government's move to raise fuel prices by an average of 28.7 percent on May 24.
On-year inflation rate reached 11.03 percent in June 2008 while the January-June 2008 inflation rate climbed to 7.37 percent compared to 2.08 in the same period last year. The central bank predicted full-year inflation rate would hit 11.5-12.5 percent this year.
The rise in the benchmark interest rate, locally known as BI Rate, is the third since May after BI maintained it at 8 percent for the fourth month in a row since December last year.
Many feared the higher BI Rate would prompt banks to raise their lending rates and consequently, affect the real sector's growth.
BI Deputy Governor Muliaman D Hadad said despite a rise in lending rates, bank loans in the country grew by more than 30 percent in the past couple of months.
"Bank loans grew by 31.4 percent to Rp34.6 trillion in May and 32 percent to Rp32 trillion in June," he said adding that nearly 70 percent of the bank loans was used as investment and working capital in productive sectors.
"The higher growth of bank loans which reached more than 30 percent once prompt BI to evaluate bank loans to find out whether they were used for consumption or productive sectors," he said.
But a great deal of the bank loans went to productive sectors so that they had a multiplier effect on the economy, he said.
A. Tony Prasetiantono, chief economist of state-owned Bank Negara Indonesia (BNI), said BI's decision to raise its key rate by 25 basis points to 8.75 percent was a best choice although the central bank could actually maintain it at 8 percent as an option.
"Overall, I think the decision to raise the BI Rate by 25 basis points is the best choice," he said.
In view of the current situation, other countries, including European nations would do the same, he said referring to the European Central Bank's decision to raise its key interest rate to 4.25 percent per annum from 4.0 percent.
Only the US Federal Reserve kept its interest rate at 2 percent, he said. "This is because the Fed had aggressively lowered its interest rate earlier than other countries did."
The rise in the BI Rate would have a positive impact on the rupiah's exchange rate to strengthen at Rp9,200 per dollar. In addition, it would also help ease inflationary pressure, he said.
But he doubted the effectiveness of the move in dealing with the inflationary pressure because the key rate only rose by 25 basis points.
"And the current inflation is chiefly caused by food price hikes," he said.
He said the rise in the benchmark rate would also lead to a number of negative impacts because it would do little to help banks channel more loans.
The Indonesian economy would still perform well, provided Bank Indonesia (BI) keeps its benchmark interest rate below 10 percent,
PT Catur Sentosa Adiprana Director Idrus Widjajakusuma said.
"We are optimistic the economic growth is still on the right track because the BI Rate is below 10 percent," he said.
A rise in global crude prices would have no significant impact on the economic growth if the country could boost its exports of various commodities, he said.
In the first quarter of this year, Indonesia's economy grew by 2 percent, while in the fourth quarter of last year it fell 2.15 percent.
The government has revised its 2008 economic growth forecast to a maximum of 6.4 percent from 6.8 percent previously due to surging global oil prices and an adverse global economy.
Idrus said the rupiah's stable exchange rate against the dollar was one of the indicators that the Indonesian economy still performed well.
The rupiah edged closer to Rp9,200 per dollar last Thursday. Analysts predicted the Indonesian currency would strengthen below Rp9,200 per dollar in the ensuing days.
Jakarta, July 7 (ANTARA) - Bank Indonesia (the central bank/BI) decided last Thursday to raise its benchmark interest rate by 25 basis points to 8.75 percent in a widely-expected move to curb the accelerating inflation in Southeast Asia's biggest economy.
"Inflationary pressure in 2008 was particularly the result of fuel oil and food price hikes," BI Governor Boediono said in a press conference.
BI noted that the inflationary pressure also resulted from rising demands due to a rise in the amount of bank loans and money supplies until the second quarter of this year.
Therefore, the central bank considered it necessary to raise its key rate to prevent the second round effect of fuel oil and food price hikes on the prices of other commodities, he said.
BI said earlier it expected the inflation to peak in June following the government's move to raise fuel prices by an average of 28.7 percent on May 24.
On-year inflation rate reached 11.03 percent in June 2008 while the January-June 2008 inflation rate climbed to 7.37 percent compared to 2.08 in the same period last year. The central bank predicted full-year inflation rate would hit 11.5-12.5 percent this year.
The rise in the benchmark interest rate, locally known as BI Rate, is the third since May after BI maintained it at 8 percent for the fourth month in a row since December last year.
Many feared the higher BI Rate would prompt banks to raise their lending rates and consequently, affect the real sector's growth.
BI Deputy Governor Muliaman D Hadad said despite a rise in lending rates, bank loans in the country grew by more than 30 percent in the past couple of months.
"Bank loans grew by 31.4 percent to Rp34.6 trillion in May and 32 percent to Rp32 trillion in June," he said adding that nearly 70 percent of the bank loans was used as investment and working capital in productive sectors.
"The higher growth of bank loans which reached more than 30 percent once prompt BI to evaluate bank loans to find out whether they were used for consumption or productive sectors," he said.
But a great deal of the bank loans went to productive sectors so that they had a multiplier effect on the economy, he said.
A. Tony Prasetiantono, chief economist of state-owned Bank Negara Indonesia (BNI), said BI's decision to raise its key rate by 25 basis points to 8.75 percent was a best choice although the central bank could actually maintain it at 8 percent as an option.
"Overall, I think the decision to raise the BI Rate by 25 basis points is the best choice," he said.
In view of the current situation, other countries, including European nations would do the same, he said referring to the European Central Bank's decision to raise its key interest rate to 4.25 percent per annum from 4.0 percent.
Only the US Federal Reserve kept its interest rate at 2 percent, he said. "This is because the Fed had aggressively lowered its interest rate earlier than other countries did."
The rise in the BI Rate would have a positive impact on the rupiah's exchange rate to strengthen at Rp9,200 per dollar. In addition, it would also help ease inflationary pressure, he said.
But he doubted the effectiveness of the move in dealing with the inflationary pressure because the key rate only rose by 25 basis points.
"And the current inflation is chiefly caused by food price hikes," he said.
He said the rise in the benchmark rate would also lead to a number of negative impacts because it would do little to help banks channel more loans.
The Indonesian economy would still perform well, provided Bank Indonesia (BI) keeps its benchmark interest rate below 10 percent,
PT Catur Sentosa Adiprana Director Idrus Widjajakusuma said.
"We are optimistic the economic growth is still on the right track because the BI Rate is below 10 percent," he said.
A rise in global crude prices would have no significant impact on the economic growth if the country could boost its exports of various commodities, he said.
In the first quarter of this year, Indonesia's economy grew by 2 percent, while in the fourth quarter of last year it fell 2.15 percent.
The government has revised its 2008 economic growth forecast to a maximum of 6.4 percent from 6.8 percent previously due to surging global oil prices and an adverse global economy.
Idrus said the rupiah's stable exchange rate against the dollar was one of the indicators that the Indonesian economy still performed well.
The rupiah edged closer to Rp9,200 per dollar last Thursday. Analysts predicted the Indonesian currency would strengthen below Rp9,200 per dollar in the ensuing days.
