'Lower SBI rate stimulates growth'

'Lower SBI rate stimulates growth'

A'an Suryana, The Jakarta Post, Jakarta

The reducing interest rate of Bank Indonesia one-month SBI
promissory notes will trigger a positive chain reaction in the
country's economy, according to analysts.

Banking analyst Elvyn G. Masassya said on Friday that the fall
in the central bank benchmark rate would drive bank lending rates
lower and boost lending activity as loans became cheaper, which
in turn would stimulate economic growth.

He added that the lower rate would help ease the burden on the
state budget in covering the interest payable on the huge
government bonds issued to bailed out banks in the late 1990s.

"This is a positive signal for the economy," he told The
Jakarta Post.

Amid a slump in exports and a lack of foreign direct
investment, the climate of falling interest rates should help
boost consumption, seen by many as a prime mover of the economy
this year.

The interest rate of the one-month SBI note has been falling
since the beginning of this year, dropping to 15.16 percent on
Wednesday, from over 18 percent late last year.

The easing of inflationary pressures and strengthening of the
rupiah against the U.S. dollar during the past couple of months
have given more leeway to Bank Indonesia to lower the interest
rate.

The full impact of the lower SBI rate, however, could only be
felt after three months, analysts said.

"There is a time lag. Banks would not let the bank interest
rate fall unless the three- to six-month deposits were due," said
banking analyst Ryan Kiryanto.

Bank lending rate is currently around 19.25 percent.

Ryan said that the lower lending rate would trigger companies
to start borrowing for working capital as loans became
affordable.

He said that a brisk real sector would help push economic
growth.

The government has targeted the economy to grow higher, at 4
percent this year, from over 3 percent last year.

Analysts also said that the lower SBI rate should allow the
state budget to allocate more funds to government pump priming
activities to stimulate growth.