Interest rate can still go down: BI

The Jakarta Post, Jakarta

Bank Indonesia said Friday there was still room for its bench- mark interest rate to fall in the near future on the back of easing inflationary pressure.

Bank Indonesia deputy governor Miranda Goeltom said that expectation of a stronger rupiah towards the end of the year was slowing down inflation.

"... Low inflation shows us there is room to further lower the interest rate," Antara quoted Miranda as saying.

Miranda was commenting on data provided by the Central Bureau of Statistics (BPS) a day earlier which shows July year-on-year inflation slowed down to 10.05 percent from 11.48 percent posted in June, signaling the government's single-digit inflation target is still within reach.

Annualized inflation has been in a declining trend since February, which has allowed Bank Indonesia to bring down the interest rate of its one-month SBI promissory notes to around 14.93 percent compared to more than 17 percent earlier this year.

Miranda was optimistic that the declining inflation trend would continue, in accordance with the expected solid display by the local currency against the U.S. dollar in the future.

The rupiah closed at Rp 9,085 per dollar on Friday, an appreciation of 12 percent since the start of the year.

A relatively stable domestic political scene, plus divestment of assets held by the Indonesian Bank Restructuring Agency (IBRA) would likely help stabilize the local unit, which in turn would lower prices of imported goods.

This would help lessen the pressure on inflation.

"... And government plans to divest its stake in Bank Niaga and Bank Danamon later this year makes us believe that the chances of the rupiah to further strengthen are wide open, stronger than the current level," she added.

On the monetary policy front, lowering the interest rate would be made possible by controlling base money.

As of July, currency in circulation stood at Rp 115.3 trillion, far below Rp 125 trillion targeted by the International Monetary Fund (IMF).

The central bank, following the BPS announcement, cut its overnight intervention rate - the rate it offers commercial banks to deposit money in Bank Indonesia - by 50 basis points Friday to 13.625 percent.

The rate is a signal of easing monetary policy.