BI still sees room for further rate cuts

BI still sees room for further rate cuts

The Jakarta Post Jakarta

Bank Indonesia Governor Sjahril Sabirin said on Friday there was still room for further cuts in its benchmark interest rate on the back of a soft inflation outlook.   Though the Central Bureau of Statistics (BPS) announced earlier that inflation in April increased by 7.4 percent from the same month last year, Sjahril said the April inflation figure was considered soft.   "Inflation has been good so far and remains low. There is still the chance for the interest rate to go down in the future," Sjahril said.   BPS said the April inflation figure, which rose by 0.15 percent from March, was driven mainly by higher prices for electricity and sugar.   Analysts have said that inflation is likely to remain under control and that the government's 9 percent inflation target for this year is attainable.   "All of this is nothing but good news, because it means we can continue the recent trend that saw the interest rate decline," Sjahril said.   The central bank has been cutting the benchmark interest rate on its one-month SBI promissory notes over the past two years.   Currently, the interest rate is at 11.06 percent, compared to more than 16 percent early last year.   The lower interest rate environment is expected to push bank lending, which will help generate more economic activity and also help to ease the burden of the government in servicing its domestic debts, whose interest rates are linked to the SBI notes.   However, most banks still remain reluctant to increase lending to the corporate sector because many companies have yet to restructure their debts.   But the burden on the state budget to cover the interest of government bonds has clearly lessened.   According to one calculation, the government saves up to Rp 2 trillion whenever Bank Indonesia cuts its interest rate by 1 percentage point.