SBI down to 8.41%

Bank Indonesia said that its benchmark interest rate declined slightly to 8.41 percent during the Wednesday weekly auction of Bank Indonesia SBI promissory notes, compared with 8.42 percent the previous week.

The central bank has been cutting the interest rate on its one-month SBI notes during the past year amid a relatively benign inflation environment. The benchmark rate was at more than 13 percent at the beginning of this year.

Some analysts have said that the benchmark rate could go as low as 8 percent by the end of the year amid lower-than- projected, full-year inflation.

The central bank has said that full-year inflation would likely reach only around 4.5 percent, given an ample supply of food and a stronger rupiah. The government projected inflation this year to be at around 9 percent.

The fall in the SBI rate is expected to ease the burden on the government in repaying its huge domestic debt, which is in the form of bonds whose interest rate is linked to the SBI rate.

In addition, the lower SBI rate has been expected also to push banks to lower their lending rate for the country's corporate sector, which is badly in need of cash for working capital. Unfortunately, most banks remain reluctant to boost lending to the corporate sector due to slow progress in the restructuring of the latter's bad debt problem.

However, the lower SBI rate has allowed banks to make consumer loans and housing loans cheaper, one of the main reasons behind the latest boom in the property sector.JP