Interest rate could drop to 7.5%<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
Standard Chartered Bank has forecast the declining trend in Bank
\nIndonesia's interest rate will continue, and by year-end the rate
\nwill be between 7.5 percent and 8 percent.<\/p>\n
Standard Chartered global economist Fauzi Ichsan said on
\nTuesday a combination of internal and external factors were
\nbehind the continued decline, which bodes well for efforts to cut
\nbank rates for commercial lending.<\/p>\n
\"First, inflation is expected to continue to ease, mainly
\nbecause of a stable rupiah. We predict inflation will reach about
\n6 percent by the end of the year,\" Fauzi said.<\/p>\n
The Central Statistics Agency recently reported that
\ninflationary pressure had eased over the past several months due
\nto stable or declining prices of consumer goods. In July,
\ninflation stood at 0.03 percent, bringing the cumulative figure
\nfor the first seven months of the year to 1.26 percent, a
\nhistoric low.<\/p>\n
Currently, the interest rate on the Bank Indonesia promissory
\nnote stands at 8.99 percent, far below the 13 percent level of
\nearlier this year. The central bank expects the rate to hover at
\nabout 8 percent to 9 percent this year.<\/p>\n
Fauzi said the central bank would continue to cut rates to
\nease its burden. He said a high rate would be burdensome because
\nthe excess liquidity in the banking sector was channeled to the
\nbank's promissory notes. BI has to pay interest on the excess
\nliquidity.<\/p>\n
\"On a daily basis, the excess liquidity is estimated at
\nbetween Rp 15 and Rp 20 trillion,\" he said.<\/p>\n
Analysts have said the excess liquidity comes as a result of
\nthe reluctance of domestic banks to channel loans to the
\ncorporate sector, which is still deemed as risky because of the
\nslow recovery of the country's economy.<\/p>\n
Externally, Fauzi sees little chance the U.S. Federal Reserve
\nwill raise its benchmark rate this year, which will provide
\nanother reason for Bank Indonesia to continue lowering its rates.<\/p>\n
A low interest rate is seen as crucial for reducing the
\ngovernment's burden in servicing its domestic debts, whose
\ninterest rates are mostly tied to Bank Indonesia's rate.<\/p>\n
A low interest rate is also helpful for the private sector, as
\nit will force banks to cut their rates for commercial loans. This
\nwould spur business activities, which in turn would boost the
\ncountry's economic growth.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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