Bank Indonesia cuts overnight rate

The Jakarta Post, Jakarta

Bank Indonesia cut on Tuesday the overnight money market rate by 25 basis points to 7 percent, a move that may trigger a further cut in the central bank's benchmark interest rate.

The cut came following the country's peaceful legislative elections on Monday.

The overnight money market rate is the return Bank Indonesia offers commercial banks for keeping excess funds at the central bank.

Over the past two years, Bank Indonesia has gradually been lowering the domestic interest rate in the hopes of encouraging commercial banks to also lower their lending rates and thus make credit more affordable to the corporate sector.

Unfortunately, most banks remain reluctant to boost lending to the corporate sector, as investing in the sector is still deemed risky amid slow progress in corporate debt restructuring.

Thus, the banks prefer to keep their excess funds in the form of Bank Indonesia promissory notes (SBI) or in the overnight money market.

The interest rate for the one-month SBI notes currently stands at 7.42 percent.

The central bank is expected to cut down the one-month SBI rate further to about 7 percent during the SBI auction on Wednesday.