Bank Indonesia still sees room for further rate cut
Bank Indonesia still sees room for further rate cut
The Jakarta Post, Jakarta
Bank Indonesia deputy governor Aslim Tadjudin said on Friday that
the central bank expected its benchmark rate to further drop on
the weak inflation outlook this year.
"We still see room for further rate cuts," he was quoted by
Dow Jones as saying.
The central bank has been aggressively cutting the interest
rate of its one-month SBI promissory notes in the hope that the
banking industry follows suit and also cuts their lending rates
to make loans more affordable for the corporate sector. Strong
investment activities by the corporate sector would thus push
economic growth higher.
Lower SBI rates would also ease the burden of the government
in servicing its huge domestic debts.
The SBI rate is currently 8.7 percent, compared to around 13
percent earlier this year.
The central bank expected inflation this year to be at around
5-6 percent, much lower than the initial projection of 9 percent.
The lower inflation environment is the result of a rapid
appreciation in the exchange rate of the rupiah against the U.S.
dollar, which makes the prices of imported goods and raw
materials cheaper.
Benign inflation has provide room for the central bank to
continue cutting its benchmark rate during the past eight months.
Declining interest rates in other countries is also a
contributing factor.
But, unfortunately, the interest rate on bank lending has
remained stubbornly high, at between 17-18 percent. Many
businessmen have said that the ideal lending rate should be 12-13
percent.
On many occasions, Bank Indonesia Governor Burhanuddin
Abdullah has urged banks to cut their lending rates, saying that
he wants to see lending grow by 20-22 percent next year, to
support an economic growth target of 4-4.5 percent.
He explained that the current macro economic stability should
boost investment activities.
According to central bank data, bank lending during the first
semester of this year only grew by around 7 percent, amounting to
around Rp 23.8 trillion in fresh loans, increasing the total
outstanding bank loans to Rp 434.1 trillion.
Assuming that lending growth in the second half will be about
the same as in the first half, outstanding loans by the end of
this year will reach Rp 458 trillion.
This means that a lending growth of 20 percent would require
fresh loans of about Rp 91 trillion.
Some bankers, however, said that it would be difficult to meet
the central bank's demand.
They said the country's banks -- which have just started to
recover from the devastating impact of the late 1990s financial
crisis -- had to be extra careful with their money, particularly
as the corporate sector was still associated with high risk and
was mired in a slow restructuring process.