BI governor aims for further rate cuts
BI governor aims for further rate cuts
Dadan Wijaksana, The Jakarta Post, Jakarta
The Supreme Court swore in on Tuesday Burhanuddin Abdullah as the
new central bank Governor, in a ceremony during which he further
reiterated his pledge to maintain the current declining trend in
Bank Indonesia's benchmark interest rate to help boost bank
lending to the corporate sector.
"I can still see room for further cuts, hopefully it can reach
a level below 10 percent," Burhanuddin told reporters on the
sidelines of the ceremony.
He did not mention the time frame for the target.
Last week's central bank auction saw the benchmark interest
rate fall to 10.80 from 10.91 in the previous week. The cut was
the latest made by the central bank in over a year, which has
seen the rate rapidly falling from around 17 percent early last
year.
The move forms part of BI's commitment to help push banks to
start pouring in money to the real sector to accelerate the
country's economic growth.
Throughout 2002, the central bank recorded new loans expanded
by banks amounting to Rp 62.5 trillion (US$7.3 billion), a slight
increase compared with Rp 56 trillion handed out the year before,
when the Bank Indonesia benchmark interest rate were still
hovering at around 18 percent.
Currently, the average lending rate charged by banks stands at
18.8 percent.
The remarks confirm earlier commitments to legislators to
boost lending.
In a presentation at the House of Representatives last week,
Burhanuddin said that in the next 100 days he would focus his
efforts on improving the role of the banking sector to give more
financing access to the real sector, while also maintaining
monetary stability.
"In my first weeks, I will immediately solicit first-hand
inputs from banks as to why lending has yet to pick up despite
the declining BI interest rate," he said.
He added that similar meetings would also be periodically held
with other related parties, such as the government and business
community, including the Indonesian Chamber of Commerce (Kadin)
and trading associations.
Nevertheless, Burhanuddin said on Tuesday that such a cut
should be done cautiously in order not to spark monetary
instability.
"The interest rate needs to come down to a level that can spur
bank lending to the business sector, but we have to do it
carefully to keep inflation in check," he said.
A huge amount of lending could also mean that there would be
more money in circulation, which has the potential to encourage
inflation.
The inflation rate in the country -- despite being one of the
highest in the region -- has been relatively low by Indonesian
standards. In the first four months of the year, inflation was
recorded at 0.92 percent with the on-year figure standing at 7.54
percent.
During the ceremony, Burhanuddin also said that the strong
showing of the rupiah against the U.S. dollar had not come to a
level that could hurt the country's exports.
"I haven't heard any complaints from exporters so far. The
rupiah remains competitive compared with neighboring countries."
The rupiah has already appreciated by more than 5 percent this
year alone. It ended Monday's trading at Rp 8,390 per dollar. The
last time the local unit traded around this level was in August
2001.
Burhanuddin was appointed governor of the central bank for a
five-year period after edging out other candidates in the
running, namely Miranda C. Goeltom and Cyrillius Harinowo. He
replaced Sjahril Sabirin, who had held the post since 1998.