Higher BI rate not enough to control imports: Central bank

"We must control imported goods but the BI rate alone cannot control it. It is possible to do it though very high interest rates, but it is not wise," BI Senior Deputy Governor Mirza Adityaswara said.
Jakarta (ANTARA News) - Bank Indonesia` Senior Deputy Governor Mirza Adityaswara has said that imports cannot be controlled through just a higher interest rate (BI rate), but must also be supported by a tightening of fiscal policy.

"We must control imported goods but the BI rate alone cannot control it. It is possible to do it though very high interest rates, but it is not wise," Mirza said in Jakarta on Tuesday.

Mirza pointed out that Indonesian imports, especially for fuel oil (BBM), had become so high that they now needed to be reduced.

"Actually, the most problematic matter in our current account is that we are importing oil. So our short-term policy should be aimed at reducing high fuel imports, while the long-term policy should focus on seeking alternatives sources of fuel," Mirza added.

In addition, Indonesia`s exports have also declined, owing to the fall in commodity prices. Mirza estimated that commodity prices would rise again during the next two or three years.

"After China and India`s economies improve, commodity prices will rise again," he pointed out.

On the possibility of BI rates rising again, Mirza stated that a BI rate of 7.25 percent and the central bank`s deposit facility (Fasbi) interest rate were currently enough to cover inflation in 2014.

"Economists usually see whether Fasbi and BI rate have been trending higher than next year`s inflation or not. If the inflation is estimated to be 5 percent next year, then the central bank`s current deposit facility interest rate of 5.5 percent and a BI rate of 7 percent would be enough," Mirza noted. (*)

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