BI benchmark rate down again

The Jakarta Post, Jakarta

Bank Indonesia said the interest rate on its one-month SBI promissory notes declined again during the weekly Wednesday auction, which is surprising given the expected strong inflationary pressure this month as a result of the utility price hikes.

The benchmark rate slipped to 12.89 percent from 12.93 percent previously.

The central bank said it had accepted Rp 20 trillion in bids for the one-month SBI notes, or 66 percent of the total bids received.

Bank Indonesia also said it had auctioned Rp 16 trillion of three-month SBI notes, or 80 percent of the total incoming bids. The weighted average rate of the three-month SBI notes fell to 12.94 percent from 13.11 percent.

The central bank has been aiming to lower the benchmark rate since the beginning of 2002 when it stood at more than 17 percent. The move was crucial to help push the banking sector to provide cheaper loans for businesses, and to reduce the state budget burden in covering the interest rates of government bonds.

But many said earlier that it would be unlikely for the central bank to let the benchmark rate drop again this week to help curb the strong inflationary pressure resulting from the recent increases in fuel, electricity and telephone charges.

The rate cut may indicate the central bank is not overly concerned with the impact of the recent price hikes on inflation for the whole year. Bank Indonesia instead still wants to guide rates lower to help spur economic growth and reduce the weighty costs of the bailout program for the financial sector.