Downward trend in interest rates likely to continue<\/p>\n
JAKARTA (JP): Bank interest rates have declined sharply over
\nthe past two months and based on the economy's promising outlook,
\nanalysts believe the trend will continue.<\/p>\n
Bank Indonesia's benchmark interest rate, which climbed as
\nhigh as 70 percent in August last year, has gradually declined as
\nthe economy has improved over the past several months.<\/p>\n
This week, the interest rate on Bank Indonesia's promissory
\nnotes fell to an average of 24.65 percent, compared to a 35
\npercent average in April.<\/p>\n
Commercial banks have also significantly lowered the interest
\nrates on their time deposits, following the falling interest
\nrates at the central bank.<\/p>\n
State Bank Pembangunan Indonesia is offering a 27 percent
\ninterest rate on one-month deposits, 25 percent on three-month
\ndeposits, 24 percent on six-month deposits, 22 percent on one-
\nyear deposits and 18 percent on two-year deposits.<\/p>\n
Bank Internasional Indonesia offers interest rates of 26
\npercent, 25 percent, 24 percent and 22 percent on one-month,
\nthree-month, six-month and one-year deposits, respectively.<\/p>\n
The interest rates offered by the banks for savings accounts
\nare much lower, ranging from 18 percent to 20 percent.<\/p>\n
The interest rates on one-month deposits at commercial banks
\nwere as high as 40 percent in January and 35 percent in May.<\/p>\n
Financial analysts said interest rates would continue to fall
\nand could reach their precrisis level of below 20 percent by the
\nend of this year.<\/p>\n
Rupiah stable<\/p>\n
The analysts downplayed fears that lower interest rates would
\npose a threat to the rupiah, which has stabilized over the last
\ntwo months.<\/p>\n
\"The rupiah will remain stable even if interest rates fell to
\nbetween 17 percent and 20 percent by the end of year. There is
\nfluctuation (of the rupiah) but it is in the normal range,\"
\nfinancial analyst I Nyoman Moena told The Jakarta Post on
\nThursday.<\/p>\n
Almost all companies now need rupiah to support their
\noperations while bankers need rupiah for the bank
\nrecapitalization program, he said.<\/p>\n
\"They just don't have the luxury of buying dollars because of
\nthe circumstances,\" Nyoman said when asked if lower interest
\nrates would encourage investors to switch their investments from
\nrupiah to the U.S. dollar, which offers less risk.<\/p>\n
If the general election runs smoothly and there is no unrest
\nafter the elections, the rupiah will strengthen to 6,000 against
\nthe U.S. dollar from about 8,000 at present, some analysts said.<\/p>\n
They shared the view that political factors would influence
\nthe rupiah more than interest rates.<\/p>\n
A monetary analyst with a foreign bank said Indonesia learned
\nduring the economic crisis that there was no meaningful
\ncorrelation between interest rates and the exchange rate of the
\nrupiah.<\/p>\n
\"The interest rate is now significantly lower than its peak at
\nthe 70 percent level in the middle of the crisis. But the
\nrupiah's value has not significantly improved in this period,\" he
\nsaid.<\/p>\n
As long as interest rates do not drop below 20 percent, the
\nimpact on the rupiah will be minimal, he said.<\/p>\n
If parties oppose the results of the general election and
\nriots occur, it could send the wrong signal to the rupiah, the
\nanalysts said.<\/p>\n
One analyst said that in the past the rupiah plunged
\nimmediately following riots and unrest.<\/p>\n
However, he said the rupiah had become more riot tolerant.
\n\"The exchange rate did not react as sensitively to the last riots
\nas it did to earlier ones.\"<\/p>\n
\"The smooth campaign is proof that previous riots and trouble
\nwere merely engineered by irresponsible parties,\" he said. (udi)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/downward-trend-in-interest-rates-likely-to-continue-1447893297",
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