BI cuts rate again in first auction of year

The Jakarta Post, Jakarta

The central bank slashed on Wednesday its one-month promissory notes (SBI) interest rate to an all-time low of 8.24 percent in its first weekly auction this year, from 8.31 percent the week before.

The cut, which follows the declining trend in the past two years, shows the bank's continued commitment to the trend this year.

Last week, the bank's deputy governor Aslim Tadjudin said that the stable rupiah and the mild inflation augured well for the bank to "cautiously" continue lowering the rate throughout the year.

As comparison, the rate hovered at around just under 13 percent early last year.

The rate cut was only days after the Central Statistics Agency (BPS) released its latest report showing the lowest year-on-year inflation in four years. In December 2003, the 0.94 percent inflation brought the total inflation in 2003 to a mere 5.06 percent.

Experts have been in favor of a low interest rate due to its good impact on the economy as a whole.

Bank Indonesia's declining interest rate should provide more leeway for the banking industry to lower the lending rates to the real sector, thus making loans more attractive to businesspeople, many whom are now in dire need of funds for revival.

This will boost the country's economic growth.

Also of equal importance, a low Bank Indonesia interest rate will ease the burden of the government in servicing the interest payment of its domestic bonds, most of which have interest rates tied to the movement of the central bank's rate.