BI further cuts SBI rate

BI further cuts SBI rate

The Jakarta Post, Jakarta

In a sign of further confidence in the economy, the central bank
cut its benchmark interest rate to 9.10 percent on Wednesday from
9.17 percent previously.

Bank Indonesia has cut the interest rate on one-month SBI
promissory notes by more than 4 percentage points since the
beginning of this year amid a benign inflation environment and
stronger exchange rate of the rupiah against the U.S. dollar.

But the central bank's latest rate cut at the weekly auction
of the SBI notes was made at a time of rising concern over the
strength of the rupiah, which last week fell to a three-month low
and forced Bank Indonesia to intervene by selling its dollar
reserves. Bank Indonesia officials have remained optimistic on
the prospects of the rupiah.

After appreciating more than 8 percent since early this year,
the rupiah faltered last week mostly on the dollar's newly found
strength, triggered by rising confidence in the U.S. economy. The
sentiment forced the local unit to weaken to as low as 8,700 mid
week.

On Wednesday, the local currency closed at Rp 8,510 per
dollar, up from Tuesday's closing of 8,610 per dollar, a move
that seems to justify the confidence shown by Bank Indonesia in
simultaneously slashing its one-month interest rate.

Analysts have regarded the low Bank Indonesia interest rate as
beneficial to the overall economy.

On the government side, the lower rate means lower allocation
in servicing the payments for its huge public debts, as most of
its interest rates are tied to the BI's rate movement. The state
budget should save up to Rp 2 trillion from a 1 percent decline
of the BI's rate.

The private sector should also benefit, as banks will be
forced to cut their interest rates for commercial lending as
well, making loans more affordable for the private sector.