BI: Rupiah Investment Remains Attractive
Friday, 12 May, 2006 | 14:40 WIB

TEMPO Interactive, Jakarta: Deputy Governor of Bank Indonesia (BI), Aslim Tadjuddin, confirmed that the rise of The Fed interest rate to five percent will not lower the rupiah investment. This is because the BI rate is still more competitive and advantageous, compared to the interest rate of neighboring countries or The Fed.
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“For short term investors, our interest rate is still interesting,” Aslim told Tempo in Jakarta yesterday.
He explained that although BI lowered the rate to 12.50 percent, this amount still differs from The Fed's 7.5 percent. Even compared to the interest rate of other Asian countries, the BI rate is higher. The Malaysian Overnight supplies 3.5 percent, the Philippines Overnight 7.5 percent, Thailand Policy Rate 4.75 percent, Korean Overnight 4 percent, and China Over Year Yuan Deposit 5.85 percent.

“So the market need not be concerned over what the observers fear,” said Aslim. “They earn a big profit by investing in Indonesia

What is BI’s monetary policy in the future regarding The Fed's trend that is predicted to keep rising? According to Aslim, the step taken by the Central Bank does not always determine the United States' interest rate.

“Our standard is macro-economy indicators,” he said. This means BI will give consideration to internal factors like inflation rate, balance of payments, exchange rates, and economic growth.

External factors like The Fed's interest rate or the world's oil prices, Aslim admitted, are still deliberated upon. However, internal factors are more dominant in BI's determining its interest rate.

However, Aslim said, there is still a possibility that the BI rate will go down again. “It depends on inflation pressure,” said Aslim.

BI optimistically predicts the inflation rate will be seven to eight percent by the end of year. The interest rate will be maintained at the level which prevents the investors from capital outflow and does not encourage a large entry of short term funds at one time .

According to Vice Managing Director of PT Bank Central Asia, Jahja Setiaadmadja, the interest rate difference between The Fed and BI is four to five percent. However, the current 7.5 percent difference is positive. The BI rate that goes down too fast will endanger the stream of short term capital. “They could turn to buying dollars,” he said.

Agus Supriyanto, Yudha Setiawan,and Reza Maulana