To discourage volatile short-term capital flows, the Bank of Indonesia will extend the minimum holding period of its bank certificates, SBIs, from one month to six months, effective May 13. This means traders holding the notes will not be able to sell them in the secondary market until they have held them for six months.
The unexpected news builds upon previous measures aimed at slowing down investment in very short-term debt. For example, the Bank of Indonesia has already all but stopped issuing 3- and 6-month SBIs. A key risk for countries receiving increased capital inflows is that they might reverse, which could have sudden and unpredictable consequences, as the Bank of Japan has pointed out. The Bank of Israel’s Stanley Fischer has made the same argument.
Indonesia has held rates after tightening them for the first time since 2008 at its last meeting – but said this should not be interpreted as a change of direction. “This decision does not change the direction of Bank Indonesia’s monetary policy that is tending to be tight to manage high inflationary pressures,” said the Bank.
Inflation in south-east Asia’s largest economy is above target but falling. Prices rose by more than 7 per cent in the year to January. This fell to 6.84 per cent in the year to February, and the head of Indonesia’s statistics body sees March inflation at a similar or lower level. The target is 5 per cent +/- 1 per cent.
Bank Indonesia has taken the “last option”, raising its policy rate today by a quarter of one per cent, taking the policy rate to 6.75 per cent. It is the first rate rise since September 2008. Food price pressure was given as the main reason for the move.
The central bank indicated in mid-January that it would be prepared to increase rates, but said the timing would depend upon the success of other measures to reduce liquidity, such as raising reserve requirements. Deputy governor Hartadi A. Sarwono repeated last week that a rate hike was a possibility, but said it would be the last option.
Thailand, Indonesia and India have all made bullish noises of late, suggesting they may raise rates in the near future.
Indonesia’s central bank governor said today that it remained vigilant against rising inflationary pressures, which is good to know from a bank that has been keeping at least one eye firmly on growth. Consumer price inflation rose to 6.96 per cent in the year to December, against a 2011 target of 5 per cent +/- 1 per cent. The central bank has kept rates at their post-crisis low of 6.5 per cent to drive growth via commercial loans, Reuters reports. The IMF has called on the country to raise rates, which recently cut import duties on food to try to dampen price rises.
India is expected to raise rates next Tuesday, January 25. A “vast majority” of
The acting head of the Bank of Indonesia has been formally confirmed as its new governor, after facing tough questions from the House of Representatives on tax fraud.
Asia’s fifth largest economy has held rates at 6.5 per cent. Indonesia is bucking the regional trend of rate increases: the central bank has not raised rates since October 2008, and they have been flat for almost a year, since August 2009. Holding rates is consistent with the current inflation target of 5 per cent +/- 1 per cent: current y-o-y inflation is running at 4.16 per cent.
By Joe Cochrane
Members of Indonesia’s House of Representatives have certainly been a surly bunch. They spent more than three months investigating the government’s controversial bail-out of ailing state lender, PT Bank Century, back in 2008, before voting that it was “illegal” in March.
The members then set their sights on the country’s internationally respected finance minister, Sri Mulyani Indrawati, who approved the bail-out. Like sniping jackals, the veteran lawmakers hounded her so relentlessly – there were personal attacks in the media and boycotts of sessions to discuss budget issues – that Mulyani had enough and bolted to the World Bank, where she is now a managing director.
As expected, and in order to keep inflation within its target range of 4 to 6 per cent.
Indonesia’s central bank today decided to hold the Bank Indonesia (BI) rate at 6.5 per cent, saying the level was consistent with the 2010 inflation target of 5% ± 1%. Inflation in 2009 was recorded at 2.78 per cent, well below the target of 4.5% ± 1%. The Board sees little likelihood of renewed inflationary pressure in the first half of 2010.
The monetary policy operational target is reflected in movement in the interbank overnight rate. It is expected that bank deposit rates will track the movement in interbank rates, with bank lending rates following suit.