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.