Inflation slows giving central bank room to cut rate

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Wed, 07/01/2009 3:20 PM  |  Business

The central bank has more room to cut its benchmark interest rate, analyst say, as year-on-year inflation slowed to 3.65 percent in June, after gaining 6.04 percent in May, according to the Central Statistics Agency (BPS).

"This gives hope that the BI [Bank Indonesia] rate will decline by at least 25 basis points to push bank lending rates to decline," Bank BNI economist Ryan Kiryanto said Wednesday.

BI has cut its rate for seven straight months, from 9.5 percent in November last year to 7 percent in June this year, to spur growth. BI is scheduled to hold its collegial meeting on Friday.

Lower lending rates would prompt businesses to borrow money for expansion, further spurring growth.

"Not every bank would respond as fast [in cutting lending rates], depending on their liquidity and third-party funds. But in general, the trend of lending rates should decline," Ryan said.

Indonesia's economy is predicted to expand by 4.6 percent in the second half of this year, bringing full-year growth to 4.3 percent, Finance Minister Sri Mulyani Indrawati said Tuesday. The economy grew by 4.4 percent in the first quarter of 2009, the BPS reported.

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