BI lowers its benchmark interest rate again
BI lowers its benchmark interest rate again
The Jakarta Post, Jakarta
Bank Indonesia lowered its benchmark interest rate again,
creating concern that the move could help push inflation higher.
The interest rate on one-month Bank Indonesia SBI promissory
notes slightly declined to 12.99 percent at a weekly auction on
Tuesday, compared to 13.02 percent in the previous week.
The central bank said it accepted Rp 11 trillion in bids for
the one-month SBI notes, or 62.9 percent of the total bids
received.
Bank Indonesia usually holds the weekly auction Wednesday. But
this week's auction was held a day earlier due to Christmas Day,
which falls on Wednesday and is a public holiday in Indonesia.
Bank Indonesia has been guiding the benchmark rate lower since
the beginning of this year, which stood at more than 17 percent,
in a bid to help push economic growth and ease the burden of the
state budget in covering the interest rate of huge government
bonds issued to finance the cost of the late 1990s financial
crisis.
The interest rate of the bonds is linked to the SBI rate.
But some analysts said earlier that at 13 percent, the SBI
rate was already as low as it feasibly could go, and any move by
the central bank to lower it further could put inflationary
pressure on the economy.
Analysts said that inflation indices would go up in accordance
with an expected hike in prices, as a result of government
ordered increases in the price of electricity, telephone bills,
fuel and other items in January.
With stronger inflationary pressures, the central bank must be
extra careful in further lowering the benchmark rate.
A lower Bank Indonesia benchmark rate will mean banks must
also lower their interest rates, thus making bank loans cheaper
which would result in more spending for goods and services.
Indonesia was nearly crippled by hyperinflation during the
late 1990s economic crisis. The central bank had to take
emergency measures to slow inflationary pressures. The
government expects inflation this year to be under 10 percent,
although some think that this might not be achieved.