BI rate 6.5 percent not yet calmed depositors

Gadjah Mada University economist, Toni A.Prasetiantono, said Bank Indonesia (BI)'€™s benchmark interest rate of 6.5 percent was not yet enough to calm down depositors because the expectation of inflation was still higher than the BI rate.

'€œBI rates which had been increased by 50 basis points to 6.5 percent was not yet enough to calm down bank depositors because the inflation expectation is still above 7 percent,'€ said Toni in Jakarta on Tuesday, as quoted by Antara news agency.

According to Toni, the central bank needs to increase its benchmark interest rate again during the BI board of governors'€™ meeting next month.

'€œApart from that, what BI can now do is to carry out a careful intervention,'€ said Toni.

He said the government should begin to be aware on the need of a new equilibrium for rupiah which was above Rp 10,000 per US dollar.

'€œThis new equilibrium is actually tolerable because when the subprime mortgage crisis occurred in 2008-2009, the rupiah currency rate traded at Rp 12,000 per US dollar,'€ said Toni.

He said the new equilibrium discourse should be immediately introduced to the public to muffle negative sentiments against the rupiah. (ebf)