BI benchmark rate down to 7.77%

The Jakarta Post, Jakarta

The central bank cut its benchmark interest rate to a new low of 7.77 percent during the regular weekly auction of the Bank Indonesia SBI promissory notes on Wednesday.

The interest rate of the one-month SBI notes was at 7.86 percent in the previous week.

The cut in the benchmark rate came after the Central Statistics Agency (BPS) announced on Tuesday that the inflation rate in January slowed down to 4.82 percent from 5.02 percent in the previous month.

Indeed, the central bank has been cutting its benchmark interest rate over the past two years amid a relatively benign inflation environment, thanks largely to the strengthening of the rupiah, which makes imported goods cheaper.

The lower interest rate environment is expected to push banks to provide more loans to the corporate sector, which in the end should help accelerate economic growth. But so far most banks remain reluctant to push lending to the sector mainly due to the lingering risk of non-performing loans.

But analysts said that the decline in the SBI rate has somewhat slowed during the past several weeks. This may partly reflect the central bank's concern that inflationary pressure would likely increase this year due to rising currency in circulation as political parties would boost spending for campaigning activities during the general elections period.

The government has targeted a maximum inflation rate this year of 6.5 percent.

Meanwhile, the rupiah on Wednesday continued to strengthen to Rp 8,430 per U.S. dollar from Rp 8,450 on Tuesday. The rupiah was hard hit last week amid strong dollar demand from the corporate sector to repay maturing debts.