Interest rate likely to fall below 9%: BI

Interest rate likely to fall below 9%: BI

The Jakarta Post, Jakarta

As inflation continues to ease and the rupiah remains stable, it
would be feasible for the central bank to continue to lower its
interest rate to below 9 percent by the year end, said Bank
Indonesia senior deputy governor Anwar Nasution on Friday.

"It's feasible (to move below 9 percent), I think it (the
interest rate) will likely to continue to decline, as there is
still enough room for us to lower the rate," Anwar said.

The lower Bank Indonesia interest rate is expected to push
banks to also further cut lending rates, thus making loans more
affordable for the corporate sector.

In its latest weekly auction, the central bank cut again its
benchmark interest rate to 9.06 percent from 9.10 percent amid
the current benign inflation environment.

The Central Statistics Agency (BPS) said in its latest monthly
report that the July monthly inflation rate was only 0.03
percent, bringing the accumulated inflation figure in the first
seven months of the year to a modest 1.29 percent, the lowest in
20 years.

Inflation has been relatively mild due to the stronger rupiah,
the value of which rapidly increased against the U.S. dollar
during the first six months of the year.

The rupiah came under a brief attack last month, and earlier
this week following the bomb blast at the JW Marriott Hotel in
Jakarta. But it has now started to strengthen again.

Bank Indonesia Governor Burhanuddin Abdullah earlier said that
the stable rupiah should be able to keep inflation controllable,
with a year-end figure estimated to hover at a range of 5 percent
to 6 percent, way below this year's target of 9 percent, as
stated in the 2003 state budget.

Some analysts had previously said that if inflation could be
contained at below 6 percent, it was possible for the Bank
Indonesia interest rate to go down as low as 8 percent, which
should trigger banks to reduce their lending rates to between 13
percent and 15 percent compared to the current average rate of 17
percent.