Jakarta. Indonesia's finance chief Purbaya Yudhi Sadewa has denied involvement in the state lenders’ decision to bump up interest rates on American dollar deposits to 4 percent.

BRI, BNI, Mandiri, BTN, and the sharia bank BSI recently simultaneously unveiled plans to impose interest rates of 4 percent per annum on dollar deposits, starting November 5. This marks a sharp jump from current rates, which range from 0.75 to 1.75 percent at Mandiri and BNI, and 1 to 2 percent at BRI. The new rate will apply across all tenors.

The move sparked speculations that the increases were Purbaya’s idea as the freshly minted minister had expressed his intent to entice funds onshore. Even so, Purbaya denied Friday ever giving any instructions on such hikes. The central bank, too, is unaware of the increases, according to Purbaya, who had just had lunch with Bank Indonesia’s governor Perry Warjiyo that day.

“People accuse me that it was I, the finance minister, who dictated to the banks to raise their interest rates [on dollar deposits] to 4 percent. … I have never ordered [the sovereign wealth fund] Danantara or the state-run banks [to do so]. … There is also no [such] instruction by Bank Indonesia,” he told a news conference in Jakarta. 

For context, the Danantara fund has consolidated all state-owned enterprises, including the aforementioned lenders. Purbaya admitted that he was not surprised that people immediately assumed that the hikes were his doing. He not long ago revealed that the government was working on market-based incentives to encourage citizens to bring back home the greenback that they had saved overseas.

“Well, I did say that we wanted to incentivize people from transferring their foreign currencies in Singapore to Indonesia. But we are still working on the plan and calculating the risks,” Purbaya stated.

The aforementioned banks also issued similar-sounding statements, agreeing that the rate hikes can make keeping dollars domestically more enticing. “With a more attractive rate, BNI opens up opportunities for customers who have always placed their foreign currencies abroad to invest in the country,” BNI’s boss Putrama Wahju Setyawan said. 

Ex-Finance Minister Chatib Basri warned that the rate increases could add pressure to the Indonesian rupiah exchange rate as investors might consider the dollar a better option. 

“If the gap between the US dollar and rupiah interest rate narrows, the rupiah will weaken against the greenback. … If Bank Indonesia intervenes or raises the rupiah’s interest rate to maintain its attractiveness, the impact would be different,” the senior economist said.