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Central bank responds to critics with sharp rate cut
The central bank has given the corporate sector hope by slashing its benchmark interest rate for the third consecutive month in a bid to cushion the impact of the global economic slump and amid a recent slowdown of inflation
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The central bank has given the corporate sector hope by slashing its benchmark interest rate for the third consecutive month in a bid to cushion the impact of the global economic slump and amid a recent slowdown of inflation.
Bank Indonesia (BI) gave the first signs Wednesday it was willing to slacken its monetary policy, with a rate cut of 50 basis points to 8.75 percent, which according to analysts is the steepest single cut in more than 12 months.
The central bank slashed the rate to 9.50 percent and later to 9.25 percent in November and December, respectively, after raising it for six consecutive months from 8 percent starting May last year.
“BI has made the decision after considering the country’s monetary condition and the economic prospect in 2009,” said BI governor Boediono.
“It is possible that the rate will be lowered again later if inflation can stay at near 5 percent,” he said, adding that BI would evaluate the impact of the rate cut periodically.
BI has been widely criticized by businesses for its defensive monetary policy at a time when the corporate sector is in dire need of access to low-cost loans to help spur the economy due to the global economic crisis.
Indonesia is targeting to secure an economic growth of between 4.5 and 5.5 percent this year, with a key driver expected to be domestic consumption.
Boediono said he believed the 0.04 percent deflation rate in December, which capped 2008 with an inflation rate of 11.06 percent, had in part encouraged BI to loosen its policy.
BI has forecast an economic recovery will begin in the fourth quarter of the year, driven mainly by government spending and domestic consumption.
“Spending on infrastructure and the general elections will bolster our economy this year,” said BI senior deputy governor Miranda Goeltom.
Indonesian Employers Association chairman Sofjan Wanandi welcomed the cut, saying it was a “good signal” for the business climate.
“But BI should have gone further by lowering the rate by 100 basis points as jitters over inflation no longer exist.”
“Most importantly, banks should comply with the cut by lowering their borrowing rates for the manufacturing sector by around 10 percent to 13 percent,” Sofjan said, adding that borrowing costs now averaged between 14 and 18 percent.
Indonesian Textile Association chairman Benny Soetrisno said commercial banks were still reluctant to lower their interest rates. (hwa)
