BI benchmark rate down to 7.77%

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.