BI sees room for further interest rate cuts

Dadan Wijaksana, The Jakarta Post, Jakarta

Bank Indonesia expects its benchmark interest rate to go down further this year, as inflation remains in check while the rupiah continues to stabilize against the U.S. dollar.

While refusing to specify the range, senior deputy governor Anwar Nasution said market conditions encouraged the central bank to continue reducing interest rates.

"Inflation keeps going down and the rupiah is stable, while the banking sector also shows steady improvement. So we still have room to further lower the rate," he told reporters on Thursday.

Bank Indonesia cut the interest rate of its one-month SBI promissory notes 9 points to 7.77 percent on Wednesday, from 7.86 percent in the previous week.

The rate represents the lowest ever Indonesian interest rate.

Many economists are encouraged by the low interest rates due to their stimulating effect on the economy.

The cuts will allow commercial banks to lower their lending rates to the corporate sector, which will help spur production and encourage economic growth.

Low interest rates will also ease the burden of the government in servicing interest payments on its domestic bonds.

The latest cut followed reports issued earlier by the Central Statistics Agency announcing that year-on-year inflation in January declined to 4.82 percent from 5.06 percent in December -- already the lowest in four years.

The lower inflation rate is related to the relatively stable rupiah, which is putting little pressure on the price of imported goods.

Anwar said Indonesia had won praise from global agencies for its sound monetary policy and fiscal management of late.

International rating agency Fitch was the latest to give a positive assessment of Indonesia's economy, during a meeting on Wednesday between the agency and government officials -- including those from the central bank and the Ministry of Finance.

Anwar believed Indonesia deserved to have its sovereign rating upgraded, which currently is still four notches below the investment grade.

Indonesia could use a rating upgrade, especially now the government was planning to issue global bonds, he said.