BI bechmark rate down to 7.42%

The Jakarta Post, Jakarta

Bank Indonesia continued to lower its benchmark interest rate on Wednesday following the report on low inflation in February.

The interest rate on the one-month Bank Indonesia SBI promissory note declined to a new historic low of 7.42 percent during the regular weekly auction on Wednesday, from 7.48 percent the previous week.

The Central Statistics Agency announced on Monday that annualized inflation last month weakened to a four-year low of 4.6 percent, while on a monthly basis the economy actually saw deflation as prices fell by 0.02 percent as a stronger rupiah and a good rice harvest pushed down food prices.

Analysts had expected the falling prices would encourage the central bank to further cut the SBI rate. Bank Indonesia has been aggressive in cutting the benchmark interest rate over the past two years in a bid to push banks to lend more to the corporate sector, and also to help ease the burden on the government in servicing domestic debts, whose rates are linked to the SBI.

But given the likelihood of higher inflationary pressure in the coming months as consumption increases during the elections, there will not be much room for the central bank to continue cutting the SBI rate.

One analyst said that with the current rate already at a historic low, there was a likelihood the SBI rate would fluctuate in the coming months, ending its year-long declining trend.

Despite the lower SBI rate, however, banks remain reluctant to boost lending to the corporate sector due to various reasons. Some banks still considered investing in the sector as risky due to the slow progress in the restructuring of corporate debts. Analysts also said that many companies are taking a more prudent approach in financing their operations since the late 1990s crisis as they prefer to use internal funds and proceeds from bonds issuance.