Banks cut deposit interest rates to below 60 percent

JAKARTA (JP): A number of commercial banks have cut their deposit interest rates by as much as eight percentage points in the wake of the rupiah's recent rally and falling inflation.

These banks have been offering one-month deposit rates at below 60 percent per annum -- much lower than the 64 percent maximum deposit rate that the government is guaranteeing this week.

Publicly listed Bank Bali, for instance, cut its one-month deposit rate to 42 percent per annum from 50 percent last week, three-month rate to 40 percent from 45 percent, six-month rate to 35 percent from 40 percent and one-year rate to 30 percent from 40 percent.

Bank Panin, another listed bank, and state-owned Bank Rakyat Indonesia are also offering relatively low deposit rates. On Monday Bank Panin's one-month deposit rate stood at 52 percent (down from 54 percent last week), and BRI's was unchanged at 55 percent.

Bank Bira also lowered its rate to 59 percent for one-month deposits from 61 percent last week, and Bank Internasional Indonesia cut one-month and three-month deposit rates to 60 percent from 62 percent and 61 percent respectively last week.

Some other banks, however, continue to offer relatively high rates, over 60 percent per annum for one-month deposits. Bank PSP, for instance, is offering a one-month deposit rate of 62 percent (down from 65 percent last week).

State-owned Bank Negara Indonesia maintained its 60 percent rate for one-month deposits of less than Rp 1 billion (US$110,000), 61 percent for deposits between Rp 1 billion and Rp 10 billion, and 62 percent for more than Rp 10 billion for one- month deposits.

Banking analyst I Nyoman Moena said that although some banks still offered rates of more than 60 percent, the trend was downward.

Moena, a former Bank Indonesia director, said the falling rates were mainly driven by the appreciation of the rupiah against the U.S. dollar.

"Right now is a good time for the Indonesia's banking industry to reduce its interest rates due to the strengthening of the rupiah against the dollar," he said.

He called on Bank Indonesia to continue cutting rates to a level that most corporations were comfortable with.

Bank Indonesia started to lower rates in early September when the rupiah showed signs of strengthening against the U.S. dollar.

The rupiah was at 9,100 to the dollar on Monday compared to almost 11,000 in early September.

And the central bank has cut its benchmark rate on one-month promissory notes (SBIs) to 60 percent from over 70 percent in early September.

The central bank also cut the interest rates on banking deposit rates it guarantees to 64 percent from 67 percent in September.

A deputy chairman of the Federation of Domestic Private Banks (Perbanas), Wibowo Ngaserin, said the central bank should continue to cut its benchmark rates because domestic confidence in the rupiah was improving.

He also welcomed Bank Indonesia's plan to hold the first auction of three-month SBIs this week, saying that the plan indicated that the central bank would continue to lower interest rates.

"That's good. I believe these three-month SBIs will attract considerable interest as in a time of declining rates, fund managers prefer longer-term instruments to shorter-term ones."

The central bank, as required by the International Monetary Fund (IMF), moved to an auction system for its SBI notes at the end of July which attracted large foreign interest as investors wanted to take advantage of the high rates.

The IMF, which is leading a multibillion dollar bailout program for Indonesia, has prescribed high interest rates as a means of boosting the rupiah and restoring stability in the economy. (29/rid)