Bank Indonesia cuts overnight rate

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.