"The BI Rate will be fixed till November, at least. This presents a dilemma for Bank Indonesia as there will be capital outflow if it is lowered. On the other hand, there will be criticism from the business community if they raise it," said PrasetyanJakarta (ANTARA News) - Bank Indonesia`s Board of Governors Meeting (RDG) is likely to maintain its benchmark interest rate (BI Rate) at the level of 5.75 percent, according to eminent economist A. Prasetyantoko of the Atma Jaya Catholic University.
"The BI Rate will be fixed till November, at least. This presents a dilemma for Bank Indonesia as there will be capital outflow if it is lowered. On the other hand, there will be criticism from the business community if they raise it," said Prasetyantoko here on Wednesday.
Prastyantoko said that even if the business world would be boosted through investment and working capital loans, it would be difficult to receive the BI Rate, but the central bank still has a chance to play its lower limit for deposit facility rate (Fasbi rate) because there is a need to absorb liquidity.
"I thought that the Fasbi rate has been raised, and that leaves about a 20-40 basis points space," he said.
The central bank has previously tightened Fasbi interest rates by 175 basis points below the BI rate, or 4%. Fasbi`s interest rates are asymmetrical with the upper limit of BI`s monetary operations. The bank overnight lending rate is currently 100 basis points above the BI rate.
Prasetyantoko added that the current European climate of economic uncertainty and the U.S presidential elections scheduled for November are likely to affect the country`s economic conditions.
"For instance, if Greece is thrown out of the EU zone or there is a change of President in the United States, there may be policy changes in Indonesia. However, we cannot predict the long term scenario due to rapidly evolving global situation," he said.
Bank Indonesia is also considering not moving interest rates to stem the depreciation of the Rupiah, as there is a policy to leave the currency slightly weakened, according to Prastyantoko.
"I have observed that the Rupiah depreciation is deliberately left at a rate of 5-7 percent to encourage exports and slow down imports, but the bank should be considering the macro assumptions on the 2012 -revised state budget which amounted to Rp9.300 because it may not be sustained, the Rupiah`s realistic rate should be about Rp9.500 per US dollar," he said.
The monthly Bank Indonesia`s board of governors meeting to evaluate the monetary policy to be pursued and to establish future direction of monetary policy is scheduled to take place on Thursday, Sept 13.(*)
Editor: Heru Purwanto
Copyright © ANTARA 2012
