Bank Indonesia has kept its key interest rate unchanged at 6.5 percent, a level the central bank deems sufficient for now to help spur economic growth while also addressing an increase in inflation.
Having cut the rate over nine straight months, the central bank decided Monday to hold the rate unchanged for the second consecutive month on the threat of inflation, with BI Deputy Governor Budi Mulya saying the level remained “conducive for the process of an economic recovery as it still spurs
lending”.
Banks have now started cutting their rates for deposits and lending, thanks to BI’s total 300-basis-point rate cut since last December, to support the recovery of the country’s economy slowed by the impacts of the global economic downturn.
As of July, lending rates declined 108 basis points on average. The lending rate for working capital loans dropped 85 basis points and for investment loans 83 basis points, while consumer loan lending rates rose 53 basis points.
Bank lending between January and July saw 1.2 percent growth, or Rp 15.9 trillion (US$1.57 billion), from the same period last year.
Fourteen major local banks agreed recently to cap their deposit rates at 150 basis points above the existing BI rate for the three months after Aug. 20 — a move expected to cut lending rates in a bid to ease borrowing costs for businesses to expand, thus hopefully spurring growth.
They will cut the lending rates to 50 basis points above the BI rate after the three months.
Bank loans are estimated to grow by 15 percent throughout the year, about half of last year’s growth when lendings helped drive the economy to expand by 6.1 percent.
This year, the economy is expected to grow by between 4 and 4.5 percent, which while slower than last year, is still fairly respectable compared to many other countries that are experiencing a contraction amid the global crisis.
An upswing in inflation, however, prevented the central bank from once again cutting its benchmark rate.
The Central Statistics Agency (BPS) reported that year-on-year consumer prices rose 2.83 percent in September, higher than the 2.75 percent booked in August.
Month-on-month inflation in September, meanwhile, climbed 1.05 percent from August, the biggest in 14 months, Bloomberg reported.
Inflation may further accelerate to between 4 and 6 percent next year from this year’s estimate of
3.5 to 5.5 percent, the central bank said.
BI’s move helped strengthen the rupiah on Monday, when the local currency gained by 1 percent to 9,549 to the dollar as of 4:45 p.m. in Jakarta, Bloomberg reported.
The local currency has appreciated 14 percent this year, making it the best-performing of Asia’s 10 most-traded currencies.
The benchmark Jakarta Composite Index also advanced to close 0.1 percent up at 2,480.41 points.
