BI benchmark rate down to 8.46%

The Jakarta Post, Jakarta

The central bank's benchmark interest rate declined on Wednesday to 8.46 percent during the weekly auction of one-month Bank Indonesia SBI promissory notes.

The rate was 8.48 percent a week ago.

Bank Indonesia has been cutting the benchmark rate during the past year amid a benign inflation environment, thanks mainly to a relatively stronger exchange rate of the rupiah against the U.S. dollar. The one-month SBI rate was greater than 13 percent at the beginning of this year.

On Monday, the Central Statistics Agency (BPS) announced that inflation in October rose only slightly by 0.55 percent from the rate in September, bringing total inflation during the first 10 months to a modest 3.05 percent.

The reduction in benchmark rate is expected to push banks to also lower their lending rates so that the corporate sector can obtain cheaper loans to expand its business activities, which in turn would contribute to economic growth.

The move is also expected to help ease the burden on the government in servicing its huge domestic debt as a result of the costly bank bailout program launched in the wake of the late 1990s financial crisis.

On Wednesday, the interest rate on three-month SBI notes declined to 8.38 percent from 8.43 percent. The interest rate on government bonds used to finance the bank bailout program is linked to this SBI rate.

Some analysts, however, have said that Bank Indonesia may have to put a brake on the declining SBI rate in the coming months amid rising inflationary pressure, as prices are likely to rise during Ramadhan and the run-up to the Christmas and New Year festivities.

Elsewhere, Bank Indonesia also announced that the country's foreign exchange reserves in the fourth week of October declined by US$267 million to $34.74 billion from the previous week's level.

The central bank said that the decline was due to repayment of foreign loans.