Thu, 28 Aug 2003

SBI rate down to 8.91 percent

The Jakarta Post, Jakarta

The central bank benchmark interest rate fell again to 8.91 percent during a regular weekly auction of the Bank Indonesia SBI promissory notes.

The interest rate of the one-month SBI notes was at 8.99 percent previously.

Bank Indonesia since the beginning of this year has been aggressively cutting the benchmark rate in a bid to help trigger banks to also reduce their lending rates to make loans more affordable to the corporate sector.

The declining trend in the benchmark rate has been made possible mainly due to a benign inflation environment and a rapid increase in the value of the rupiah against the U.S. dollar.

Standard Chartered Bank earlier predicted that the benchmark rate could further decline to between 7.5 percent and 8 percent by the end of this year assuming that inflation could remain at an average level of around 6 percent.

Inflation during the first seven months of the year was at 1.26 percent, the lowest level in 20 years. The stronger rupiah has allowed prices to weaken mainly because of lower prices of imported raw materials.

Despite the aggressive cut in the central bank interest rate, banks seem to be reluctant to provide a generous cut in the lending rate mainly because indebted companies have largely remained unrestructured, which means that investing in them is considered a high risk.

However, some bankers said that lending rate had recently started to decline, now at around 15 percent to 16 percent compared to around 19 percent in the first few months of this year. They predicted that the lending rate could decrease further to around 13 percent by year-end provided the central bank continues to cut the benchmark rate.

Meanwhile, the rupiah ended higher on Wednesday in line with many other Asian currencies although it will likely remain under pressure as companies purchase dollars to repay maturing debts.

The local unit closed at Rp 8,455 per U.S. dollar, up from 8,465 on Tuesday.