Thu, 22 May 2003

SBI rate down to 10.68%

The Jakarta Post, Jakarta

Bank Indonesia cut its benchmark interest rate on Wednesday to 10.68 percent, a day after newly appointed central bank Governor Burhanuddin Abdullah pledged to maintain the current declining trend in the rate.

The interest rate on one-month Bank Indonesia SBI promissory notes was previously 10.80 percent.

The central bank has been guiding down its benchmark rate over the past year amid a benign inflation environment and an appreciation in the exchange rate of the rupiah against the U.S. dollar.

Early last year, the rate was still hovering at more than 17 percent. The lower rate would ease the burden of the government in servicing its domestic debts.

But Burhanuddin expected the rate cut could help trigger banks to boost lending to the corporate sector to accelerate the country's economic growth.

"I can still see room for further cuts; hopefully it can reach a level below 10 percent," Burhanuddin said.

Throughout 2002, the central bank recorded new loans extended by banks amounting to Rp 62.5 trillion (US$7.3 billion), a slight increase compared with Rp 56 trillion handed out the year before, when the SBI rate was still hovering at around 18 percent.

Despite the cut in the rate, the rupiah closed at a new 21- month high on Wednesday as foreign investors apparently continued to park funds in local capital markets amid rising optimism over the nation's economic fundamentals, dealers said.

The rupiah closed at Rp 8,310 per U.S. dollar, higher than 8,360 Tuesday.