Banks adjust interest rates on BI rate hike

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.