SBI rate down to 10.27%

The Jakarta Post, Jakarta

The interest rate on the one-month Bank Indonesia SBI promissory notes fell to 10.27 percent on Wednesday from 10.44 percent in the previous week.

The central bank said that the interest rate on the three- month notes also declined to 10.18 percent from 10.88 percent.

Bank Indonesia has been guiding downward its benchmark rate in the past year amid a relatively low inflationary environment. The interest rate on the one-month SBI notes was at more than 17 percent early last year.

The Central Statistics Agency (BPS) announced earlier this week that the inflation rate in May rose by 6.91 percent compared to the same month last year. This annualized rate was lower than 7.4 percent posted in April.

The lower interest rate would help ease the burden of the government in covering its huge domestic debts and make bank lending for affordable for the corporate sector.

However, analysts have said that a decline in the interest rate of the three-month SBI would affect earnings of many banks whose productive assets are mainly in the form of government recapitalization bonds, which carry both a fixed rate and variable rate, linked to the SBI rate.

Bonds which will be mostly affected are those carrying a variable interest rate.

Bank Indonesia Burhanuddin Abdullah has recently said that he wanted to see the benchmark rate down to near the 10 percent level to help push more bank lending to the real sector.