Interest rate down this week, more cuts to come: BI
Interest rate down this week, more cuts to come: BI
Dadan Wijaksana, The Jakarta Post, Jakarta
The Bank Indonesia benchmark interest rate fell again on
Wednesday, with the central bank hoping to maintain this downward
trend on signs of easing inflationary pressure, a strengthening
of the rupiah and slower growth in the money supply.
"There is still room for (more) rate cuts," Bank Indonesia
said.
At the weekly auction on Wednesday, the weighted average
interest rate on Bank Indonesia's one-month SBI promissory notes
was down to 16.26 percent, from 16.50 percent last week.
The central bank, under pressure from various quarters, has
been attempting to lower the country's punitively high interest
rate, which at the end of last year stood at about 18 percent.
A lower interest rate would help ease the burden on the state
budget in servicing the huge amount of government bonds issued to
bail out ailing banks.
A favorable interest rate environment would also help boost
bank lending, particularly to the real sector, which would in
turn help push economic growth.
Bank Indonesia announced on Tuesday it would apply a market-
friendly strategy by providing more opportunities for interest
rate cuts.
"For that, monetary policy strategies that can cautiously open
chances for the lowering of rates should be maintained," the bank
said in a press release.
The economy enjoyed its second straight month of deflation in
April, thanks to lower food prices and a stronger rupiah.
Inflationary pressure had been strong in the first two months of
2002.
The rupiah has risen against the US dollar for the last
several months. In April, the rupiah strengthened significantly
to close at Rp 9,330 per dollar, a 5.3 percent increase from
March's closing of Rp 9,825.
Slower growth of the money supply in April because of the
large amount of tax payments made it easier to cut rates for the
time being, the central bank said.
Meanwhile, expectations of a lower interest rate in the coming
weeks pushed the Jakarta Composite Index higher on Wednesday.
Shares ended marginally higher at 547.741, a 0.5 percent
increase from the previous day's close. The market was closed on
Thursday.
In a related development, Reuters, quoting a statement from
the central bank, said year-on-year economic growth in the second
quarter of this year would reach 3.5 percent to 4 percent on the
back of strong domestic consumption.
This figure is an improvement from the central bank's first
quarter estimate of about 3.2 percent.
But Bank Indonesia did not say whether it would revise its
full-year growth projection of 3.5 percent to 4 percent.