Indonesian interbank rate set for biggest weekly jump since 2013

[JAKARTA] Indonesian interbank borrowing costs jumped the most in two years this week as the central bank sought to reduce the short-term supply of rupiah to shore up the falling currency.

The one-month Jakarta interbank offering rate rose 57 basis points this week, the most since July 2013, to 8 per cent on Friday, data from the monetary authority show.

The rate, known as the Jibor, fell 13 basis points on Friday after rising to a six-year high of 8.17 per cent on Wednesday. The rupiah declined 0.1 per cent since Sept 25 to 14,706 a dollar, taking its loss this year to 16 per cent, according to prices from local banks.

Bank Indonesia is seeking to manage short-term funding costs to make it more expensive to borrow rupiah that can be used to buy dollars, without raising long-term borrowing rates, Deputy Governor Perry Warjiyo said Sept 30. The rise in the Jibor is in line with the policy, he said. The central bank has kept its benchmark rate at 7.5 per cent since February as the weakening currency limited the scope for cuts to spur economic growth.

"Rising short-term rates increases the likelihood of a hike, but it's unlikely this year owing to easing inflation and weak growth," said Ho Woei Chen, an economist at United Overseas Bank Ltd. in Singapore.

"The central bank has announced many measures, but for the rupiah, it's very much a function of the commodities market and dollar strength against regional currencies."

Mr Ho said she expects Bank Indonesia's reference rate to remain at 7.5 per cent until the end of 2015, before a 50-basis point increase in the first quarter of next year.

Consumer-price gains slowed to 6.83 per cent in September from a year earlier, the least since March, as food prices fell, according to official data released Thursday.

The central bank has announced several measures aimed at stabilising the rupiah in recent weeks including saying it will start intervening in the currency forwards market.

BLOOMBERG