BI cuts interest rate to 9.21%

BI cuts interest rate to 9.21%

The Jakarta Post, Jakarta

Bank Indonesia again cut the interest rate of its one-month SBI
promissory notes on Wednesday to 9.21 percent, down slightly from
9.23 percent at its previous week's auction.

Although slight, the cut should reflect the continued
commitment of the central bank to maintain the downward path of
its benchmark interest rate.

The central bank has been gradually lowering its benchmark
rate from over 13 percent earlier this year.

Bank Indonesia Governor Burhanuddin Abdullah previously said
that, provided that the inflation rate remains in check, the SBI
rate could go down to around 8 percent over the remainder of this
year.

The current strengthening of the rupiah against the U.S.
dollar is expected to help keep inflation low.

Analysts have said the current trend was beneficial to the
overall economy, as it means the government could save funds by
allocating less to service its huge domestic debts.

One estimate says that a single percentage point cut from the
rate could save the state coffers more than Rp 2 trillion (US$244
million).

Equally important, the trend could theoretically bring down
the interest rate for bank lendings also, thus providing cheaper
loans for the corporate sector to finance expansion programs.

While banks have yet to unanimously lower their lending rates,
which currently stands at an average of 18 percent, they have
already felt the pinch of the trend.

The hardest to be hit would be those local banks holding
government bank recapitalization bonds with a floating interest
rate.