BI expects lending rate to fall to 13% by year-end<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Bank Indonesia Governor Burhanuddin Abdullah expects the bank
\nlending rate to drop to around 13 percent by the end of this year
\nfollowing the cutting by the central bank of its benchmark
\ninterest rate to a record low.<\/p>\n
Speaking at a business forum on Thursday, Burhanuddin said
\nthat lower lending rates would make loans more affordable to the
\ncorporate sector, and also reduce excess liquidity in the banking
\nindustry.<\/p>\n
\"I expect that the (average) lending rate will decline to 13
\npercent by the end of the year,\" he said.<\/p>\n
\"Currently, from some Rp 170 trillion (US$20.48 billion) of
\nfunds circulating in the banking sector, Rp 120 trillion of them
\nare invested in SBI (Bank Indonesia promissory notes).<\/p>\n
\"That's not only unhealthy, but also places greater
\ndifficulties in the way of monetary management,\" he said.<\/p>\n
Bank Indonesia has been aggressively cutting the interest rate
\non one-month SBI notes (the benchmark rate) from over 13 percent
\nearlier this year to current level of around 8.99 percent in the
\nhope this would spur banks to lower their lending rates.<\/p>\n
But lending rates remain stubbornly high, currently still
\nstanding at between 15 percent and 16 percent.<\/p>\n
Some businessmen had previously said that the ideal lending
\nrate level would be in the range of 12 percent to 13 percent.<\/p>\n
Burhanuddin acknowledged that one of the things that
\ndiscouraged banks from boosting their lending to corporations was
\nthe slow progress in the corporate debt restructuring program,
\nwhich resulted in indebted companies being classified as high-
\nrisk customers.<\/p>\n
Given the excess liquidity in the banking sector and the non-
\nfunctioning of the intermediary role of the banks, Burhanuddin
\nsaid in his paper that monetary policy was consequently \"chasing
\nits own tail.\"<\/p>\n
\"Banks put their excess liquidity in SBIs and in return Bank
\nIndonesia has to pay the interest on these SBIs, which simply
\nmeans pumping the liquidity back into the sector.\"<\/p>\n
Encouraging banks to provide more loans to the corporate
\nsector could be expected to help increase economic growth.<\/p>\n
Over the past couple of years, the economy has been growing at
\na modest rate of between 3 percent and 4 percent, which is
\ninsufficient to create jobs for the millions of people who are
\nunemployed. The current modest growth is mainly driven by
\nconsumption.<\/p>\n
The government is targeting economic growth of 5 percent next
\nyear. To achieve this, more investment will be needed, and
\naccording to one estimate, lending from the banking sector will
\nneed to grow by at least 20 percent.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-expects-lending-rate-to-fall-to-13-by-year-end-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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