Interest rate `low enough', further cut unlikely: BI<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
After guiding its benchmark interest rate down for the past year,
\nBank Indonesia said on Friday that the current rate was \"low
\nenough,\" signaling for the first time that a further rate cut in
\nthe near future would be unlikely.<\/p>\n
\"Interest rates have been low enough, but let's see the next
\ndevelopment about whether they will fall further,\" central bank
\ngovernor Sjahril Sabirin said.<\/p>\n
The interest rate on the one-month Bank Indonesia SBI
\npromissory notes is now at 10.91 percent, compared to more than
\n17 percent early last year.<\/p>\n
Lower interest rates are good for the economy because it could
\nencourage domestic banks to start providing new lending to the
\nprivate sector.<\/p>\n
On the other hand, a lower interest rate is also good for the
\ngovernment as it would mean a lesser burden in servicing its huge
\ndomestic debts, whose interest rates are linked to the SBI rate.<\/p>\n
One estimate says that a 1 percent decline in the SBI rate
\nmeans the government could save up to Rp 2 trillion in repaying
\nthe interest of bank recapitalization bonds.<\/p>\n
Sjahril's statement, however, was in stark contrast to those
\nvoiced by some economists, who expect to see further interest
\nrate cuts on the back of benign inflation and the stronger
\nexchange rate of the rupiah against the U.S. dollar.<\/p>\n
Economists have predicted under the current stable
\nmacroeconomic condition, that the benchmark interest rate could
\nfurther decline to as low as 10 percent.<\/p>\n
The solid performance of the rupiah against the dollar in the
\npast months has helped keep inflation low, with April year-on-
\nyear inflation standing at 7.54 percent.<\/p>\n
The state budget targets the full-year inflation at 9 percent.<\/p>\n
The macroeconomics stability lately gained a new momentum when
\nthe Indonesian Banking Restructuring Agency (IBRA) sold a 51
\npercent stake in Bank Danamon to a consortium led by Singapore's
\nTemasek Holdings and Germany's Deutsche Bank.<\/p>\n
The controversy-free sale process has boosted confidence among
\ninternational investors over the government's commitment to
\ncontinued reform programs, which according to analysts are being
\nfollowed by a significant amount of capital inflows.<\/p>\n
As a result, the rupiah has been on record highs lately. The
\nstronger local unit was also helped by the fact that the U.S.
\ndollar has been on a weakening trend against other major
\ncurrencies.<\/p>\n
On Friday, the rupiah closed the day at 8,545 per dollar.<\/p>\n
And as the overall sentiment remains bullish, dealers expect
\nthe rupiah to strengthen even further.<\/p>\n
Meanwhile, Bank Indonesia early on Friday cut its overnight
\nmoney market intervention rate by 25 basis points to 10.75
\npercent -- its fourth easing this year -- after the benchmark
\none-month SBI rate declined to 10.91 percent on Wednesday, from
\n11.06 percent the previous week.<\/p>\n
The intervention rate is the interest that the central bank
\npays commercial banks for deposits.<\/p>",
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"sponsor": "Okusi Associates",
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