Five state banks pioneer national interest rate cut

JAKARTA (JP): Five of the seven state banks have cut their deposit rates between 0.5 and 1 percentage points in a move to reduce national interest rates.

A director at state-owned Ba R Rakyat Indonesia (BRI), Soetanto Hadinoto, said the simultaneous lowering of deposit rates at the five state banks had been made through consensus.

"The deposit rate cut was made after leaders of the state banks met recently to discuss the issue of interest rates," Soetanto was quoted by Antara as saying.

BRI has cut the interest rates on its up-to-three-month and six-to-12-month time deposits by 1 percentage point to 14 percent and 15 percent respectively.

The other four state banks, which cut their deposit rates by between 0.5 percent and 1 percent, were Bank Dagang Negara, Bank Bumi Daya, Bank Negara Indonesia and Bank Ekspor Impor Indonesia.

The other two state banks, Bank Tabungan Negara and Bank Pembangunan Indonesia (Bapindo), have not yet cut their deposit rates.

But Soetanto would not say whether his bank would reduce its lending rates because of the deposit rate cut.

He only said the condition in the country's banking industry was now conducive to a cut in both deposit and lending rates.

He suggested private banks follow the state banks' move.

"This time, state banks will lead the interest rate cuts. We hope the private banks will follow suit," Soetanto said.

Vice President of Bank Universal Sugito said private banks were taking a wait and see attitude.

He said the deposit rate cut at state banks opened bigger opportunities for private banks to attract more depositors because they still offered higher interest rates.

A debate on high lending rates was sparked a few weeks ago by State Minister of Research and Technology B.J. Habibie who suggested that domestic commercial banks halve their current interest rates.

He suggested commercial banks reduce interest rates to the lowest possible level and then, if there were negative impacts, increase them again.

Most economists, including Soemitro Djojohadikusumo, totally rejected Habibie's suggestion, arguing it was totally unfeasible.

The finance minister said at a hearing with the House of Representatives' Budgetary Commission earlier this week that the government would not take any drastic measure to reduce interest rates but would follow market mechanisms.

He said the government would continue to pursue realistic interest rates, which encouraged investment and public savings while discouraging speculative capital flows. (rid)