SBI down to 8.41%

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