BI NOT TO CUT RATE DESPITE LOWER INFLATION: ECONOMIC ANALYST

Jakarta, Nov 4 (ANTARA) - Chief economist of Standard Chartered Bank (SCB), Fauzi Ichsan, predicted that Bank Indonesia (BI/the central bank) will not cut its benchmark rate in the near future although the inflation rate last October had dropped below the September 2008 figure.
"The central bank usually lowers its reference rate three months after bank interest rates have increased. BI raised its benchmark only last month. So, for the time being it will be difficult for the bank to lower the benchmark rate now. Moreover, the rupiah's exchange rate is still unstable," Fauzi Ichsan said here on Tuesday.
He said that though the inflation rate has dropped in October, it had not yet reached the expected level.
"We predict that BI will maintain its rate now or even raise it by 25 basis points. It is unlikely for it to lower its reference interest rate," he added.
Referring to other countries' trend to lower their interest rates, Fauzi said that the United States and European countries were experiencing a recession condition while Indonesia was not.
"Indonesia is not experiencing a recession. Its inflation rate is still a double-digit figure while the rupiah's exchange rate is still unstable. If the rupiah continues to plunge it will fuel inflation due to imported inflation," the SCB economist said.
Fauzi said that in an effort to maintain the stability of the rupiah, BI had three options to overcome it, namely market intervention, raising bank interest rate and tightening foreign exchange transactions.
He said BI had carried out market intervention so that its foreign exchange reserves had dropped from US$60 billion to US51 billion. It had also raised interest rate and tightened the foreign exchange transactions rules.
"It is admitted that BI has limited options. Moreover, US dollar supplies in the market have returned to the United States so that the market is running short of greenback reserves," he added. ***2***