Tuesday, April 26, 2005

Indonesia central bank raises rqates on growth fears

by Brian Turner

Indonesia, which was the hardest hit of all the regional economies in the Asian financial crisis of 1997-98 and whose economy has remained behind all other Asian economies in its effort to recover from the crisis, is now faced with a decline in the value of the rupiah that has spurred fears of inflation and further harm to its recovery.

In an attempt to avoid inflation, it was announced Tuesday by Indonesia’s central bank that it would raise interest rates in order to shore up its currency, which hit a three-year low earlier in the week.

It did not say when this raise in rates would come, but it would come next week on Wednesday with the next auction of the Sertifikat Bank of Indonesia.

Indonesia’s economy grew by 5.1 percent last year and has been projected to grow by 5.5 to 6 percent this year, but the devaluation of the rupiah and rising inflation are a threat to that growth.

Continuing weakness in the rupiah could also make it harder for Indonesian companies to service offshore debt and raise the inflation rate further, which could lead to social unrest among the country’s poor. The current interest rate is 7.7 percent.

 

 

 

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