'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.