BI cuts interest rates to 13.06 percent, more to come

The Jakarta Post, Jakarta

Bank Indonesia cut the weighted average interest rate on one- month SBI promissory notes at Wednesday's auction to 13.06 percent from 13.08 percent a week earlier, while indicating the rate could further decline due to the recent strengthening of the rupiah in relation to the U.S. dollar.

"The interest rate still has a chance of declining further, primarily because of a strengthening rupiah," BI deputy governor Miranda Gultom told reporters Wednesday on the sidelines of a hearing with the House of Representatives' Commission IX on financial affairs.

The rate has been declining since the end of last year, when it was hovering at around 17 percent.

Miranda attributed the strengthening of the local currency in recent weeks partly to the government's progress in the Bali bombing investigation.

The currency stumbled to 9,300 per dollar following the Bali bomb blasts on Oct. 12, but it has been since regaining most of its lost ground.

On Monday, the rupiah broke the 9,000 level for the first time since the attacks. It closed in Wednesday's trading at 8,970.

Five weeks after the strikes, which killed almost 200 people, mostly foreign tourists, the police have nabbed one suspect behind the bomb blast, and identified at least six others.

A stronger rupiah means that imported goods will be less expensive, easing inflationary pressures. Manageable inflation would then provide more leeway for the central bank to cut its interest rates.

Inflation grew by 10.33 percent in October year on year.

A lower SBI rate will help press banks to lend more to the real sector. As such, it will help revive the economy.

As of September, total credits from national banks reached Rp 387.7 trillion (about US$42 billion), including Rp 18.5 trillion in new loan approvals during the month, according to BI.

Of the new credit approvals, Rp 3.6 trillion of which went to the small- and medium-scale enterprises (SMEs), bringing in the total credit for SMEs between January-September to Rp 24.7 trillion.

The central bank also reported that in September, the national banks' third party liabilities rose to Rp 815 trillion from Rp 811.2 trillion the month before.