Banks adjust interest rates on BI rate hike

Urip Hudiono, The Jakarta Post, Jakarta

While Bank Indonesia's recent hike of its reference interest rate has helped ease the rupiah's woes and dampened inflation concerns, observers worry the rise could stifle consumption in the economy, with commercial banks adjusting their lending rates accordingly.

Several major lenders told The Jakarta Post on Wednesday that they had raised their interest rates by at least 1 percent recently, in anticipation of the further upward trend of the central bank's benchmark BI Rate.

Bank Mandiri director for treasury and international affairs J.B. Kendarto said the country's largest lender by assets had already raised its interest rates by an average of 2 percent since Sept. 1.

The central bank raised on Aug. 30 its BI Rate by 75 basis points (bps) to 9.5 percent.

BI further hiked the rate 50 bps to 10 percent on Tuesday to strengthen the rupiah and anticipate a possible rise in inflation due to the government's plan to hike fuel prices again in October.

This encouraged banks to raise their interest rates to maintain their profits and competitiveness, thus making both commercial and consumer loans more expensive, which poses a threat to the economy in the long run.

With the latest rate adjustment, Kendarto said Mandiri's interest rates for loans were now between 12 percent and 16 percent, while its interest rates for savings and deposits currently stood between 8.5 percent and 10 percent.

"We can still tolerate another BI Rate hike to up to 12 percent," he said.

Bank Central Asia (BCA) vice president Jahja Setiaatmadja said the country's third-largest lender had raised its loan interest rates by 1 percent to a maximum of 16 percent.

Its savings and deposit interest rates, meanwhile, have also been raised by an average of 1.5 percent, to between 6.75 percent and 8.75 percent.

Jahja said BCA would likely raise rates again if the BI Rate reached 10.5 percent.

Another top-10 lender, Bank Internasional Indonesia (BII), has said that its credit interest rates have been raised by between 1 and 2 percent.

However, BI's director for research and banking license, Muliaman D. Hadad, expected banks not to pass on the financial burden resulting from the BI Rate hike to customers, as BI had taken into consideration the effect on the banking industry and the real sector.

Muliaman explained that BI's rate hike would increase the cost of funding for banks by less than 1 percent.