Thu, 19 Jun 2003

Bank Indonesia benchmark interest rate falls to 9.71%

The Jakarta Post, Jakarta

The interest rate on one-month Bank Indonesia SBI promissory notes fell to an historic low of 9.71 percent during Wednesday's weekly auction, from 10.07 percent the previous week.

The decline came after Bank Indonesia Governor Burhanuddin Abdullah said earlier this week that there was still room for the central bank benchmark rate to fall to below 10 percent.

The central bank has been guiding the SBI rate lower during the past year amid weak inflationary pressure and a stronger exchange rate of the rupiah against the U.S. dollar.

The SBI rate was hovering at more than 13 percent earlier this year.

Some analysts said that the SBI rate could further fall to around 8 percent amid the global rate fall trend.

The lower rate should not only help ease the government's burden in servicing huge domestic debts, but should also push banks to cut their lending rates and make loans cheaper for the corporate sector, which ideally should help push economic growth.

However, analysts have said that banks remain reluctant to lend to the corporate sector due to the continued high risks as many companies were still saddled with a huge amount of bad debt. On the other hand, many companies are still focusing on consolidation, and thus have not made expansion plans wherein new loans would be a priority.

The central bank is considering steps to ease rulings on bank lending to help revive the intermediary role of the banking sector.