BI's Rate Hike to Control Inflation, Exchange Rate

Jakarta (Antara) - An economic observer hailed the central bank's decision to raise its reference rate by 50 basis points to 6.5 percent on Thursday saying it would curb inflation pressure and control rupiah exchange rate. "BI (Bank Indonesia) has taken an anticipatory action to control the rupiah and inflation. This time BI has even been more aggressive than before because it was only now that BI raised by 50 bps both the reference rate and the Fasbi rate," the observer, Ryan Kiryanto said. Band Indonesia board of governors in a meeting on Thursday raised the reference rate by 50 bps to 6.5 percent to assure that the rate of inflation after the fuel price hike would return to its target range. BI governor Agus Martowardojo said the meeting also decided to raise the interest rate of deposit facility by 50 bps to 4.75 percent from 4.25 percent while the rate of lending facility remained at 6.75 percent. BI decided to raise the BI Rate by 50 bps, he said, because the central bank saw that inflation expectations is projected to be high between 7.4 and 8.0 percent after the fuel price hike and the arrival of fasting month of Ramadhan that have made prices of basic necessaries almost become uncontrollable. He said BI also saw bigger pressures on the rupiah due to a deficit in the balance of trade despite the fact that Fed's chief Ben Bernanke had said that quantitative easing would still continue. The hike would certainly affect bank credit interest rate which is projected to increase around 25 to 50 basis points. "Banks would increase credit interest rate by arounhd 25 to 50 basis points. This is measurable and would not burden business," he said. The hike in the credit interest rate, he said, would not push non-performing loans to increase as the hike is not too high, the observer said. (*)