BI slashes rate to historic low

The Jakarta Post, Jakarta

Bank Indonesia (BI) cut its benchmark one-month interest rate on Wednesday to a historic 8.51 percent, from its already low rate of 8.53 percent the week before.

Albeit slight, the decline should confirm the central bank's continued commitment to making commercial lending rates more affordable, thus helping spur economic activities.

The down trend of Bank Indonesia's rate is to be followed by banks' lowering commercial lending interest rates, a move which is expected to help boost investment in the private sector, many of which have been idle since the economic crisis in 1998.

Bank Indonesia has said that, as long as the rupiah remains stable and keeps inflation in check, the declining trend of its rate would be continued.

The stable rupiah affects the prices of imported goods very little, thus keeping inflation under control.

The country posted a modest inflation level of 2.48 percent during the January-September period, according to the Central Statistics Agency (BPS), which bodes well against the government's full-year target of around 6 percent.

The central bank's declining rate is also to benefit the state budget in servicing the domestic debt payments -- all in the form of recapitalization bonds, the interest rates of which are mostly tied to the movement of BI's interest rate.