Bank In­done­sia may raise de­posit fa­cil­ity rate: Deputy chief

The Pak Banker - - Front Page -

JAKARTA

Bank In­done­sia may grad­u­ally raise the rate it pays lenders on overnight de­posits while keep­ing the bench­mark un­changed, Deputy Gover­nor Har­tadi Sar­wono said, sig­nal­ing the need to boost short-term bor­row­ing costs as the ru­piah de­clines.

“There’s a pos­si­bil­ity that the Fasbi rate will be grad­u­ally in­creased,” Sar­wono said in an in­ter­view at the cen­tral bank in Jakarta, re­fer­ring to the de­posit fa­cil­ity rate. “There’s no pres­sure to change” the main ref­er­ence rate in the next three to six months, be­cause it is still “con­sis­tent” with the in­fla­tion tar­get, he said.

In­done­sia has kept its bench­mark in­ter­est rate un­changed at a record-low 5.75 per­cent for nine meet­ings, re­frain­ing from join­ing neigh­bors from Thai­land to the Philippines in ex­tend­ing mone­tary eas­ing as growth ex­ceed­ing 6 per­cent re­duces the need for stim­u­lus. At the same time, ris­ing im­ports have spurred a cur­rent-ac­count deficit and weak­ened the ru­piah, prompt­ing the cen­tral bank to in­ter­vene to limit ex­change-rate fluc­tu­a­tions. The cen­tral bank needs to look more closely at the Fasbi rate be­cause ex­porters may not want to sell their dol­lars to fi­nance their do­mes­tic busi­ness when they can bor­row cheaply on the ru­piah mar­ket, Sar­wono said. His big­gest con­cern is the day- to-day volatil­ity of the cur­rency that may hurt in­vestor con­fi­dence, rather than growth or in­fla­tion, he said. The ru­piah fell 0.2 per­cent to 9,635 per dol­lar as of 1:48 p.m. in Jakarta, prices from lo­cal banks com­piled by me­dia.

“We don’t have to over­re­act in our pol­icy im­ple­men­ta­tion but manag­ing day-to­day liq­uid­ity is im­por­tant,” Sar­wono said. “We don’t want to choke eco­nomic ac­tiv­ity be­cause this is only a short-term prob­lem, not a medium- and longer-term prob­lem.” Bank In­done­sia raised the de­posit fa­cil­ity rate in Au­gust to 4 per­cent from 3.75 per­cent, even as it has left the key ref­er­ence rate un­changed since a cut in Fe­bru­ary.

The Fasbi rate is “in many ways more im­por­tant” than the ref­er­ence rate be­cause it rep­re­sents the floor for in­ter­bank bor­row­ing costs, Jens Lauschke and Eu­gene Leow, an­a­lysts at DBS Group Hold­ings Ltd. in Sin­ga­pore, said in an Au­gust re­port. Lenders have no in­cen­tive to loan to other banks at lev­els be­low what they can earn at Bank In­done­sia, so Fasbi rate changes can have “sig­nif­i­cant im­pact” on in­ter­bank rates and the rest of the yield curve, they said. Economists from Bank of Amer­ica Corp. and HSBC Hold­ings Plc are among those pre­dict­ing the cen­tral bank will raise the de­posit fa­cil­ity rate by 75 ba­sis points in com­ing months. The rate will reach 4.75 per­cent by the mid­dle of 2013, Chua Hak Bin, an econ­o­mist at Bank of Amer­ica, said in a Nov. 8 re­port.

“Given the on­go­ing loose­ness of mone­tary set­tings and the ro­bust­ness of do­mes­tic in­di­ca­tors, we think the cen­tral bank still needs to work at keep­ing do­mes­tic de­mand - and hence im­port pres­sures - con­tained,” Lim Su Sian, an econ­o­mist at HSBC, who sees scope for three 25 ba­sis-point in­creases in the Fasbi rate, said in a Nov. 8 re­search note. In­done­sia’s cur­rency has fallen about 6 per­cent against the dol­lar this year, the big­gest de­cline among the 11 most-traded Asian cur­ren­cies tracked by Bloomberg.

The cur­rency prob­a­bly won’t weaken fur­ther and will start ap­pre­ci­at­ing as the cur­rent-ac­count short­fall nar­rows and the cap­i­tal-ac­count sur­plus im­proves, Sar­wono said. The de­cline this year was be­cause of the cur­rent-ac­count deficit and the cen­tral bank didn’t try to pre­vent the drop, he said.

“We don’t use a de­pre­ci­a­tion pol­icy to sup­port ex­ports so we just let the fun­da­men­tals of the econ­omy dic­tate the move­ment of the ex­change rate,” he said. The cur­rent ex­change rate of about 9,600 ru­piah a dol­lar is “still con­sis­tent with the fun­da­men­tals and it will move back to an ap­pre­ci­a­tion trend” when un­cer­tainty over the global econ­omy abates, he said.

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