The global interbank market rate is currently 4.8 percent after prolonged quantitative easing in the US. This situation led to capital inflows to the Indonesian money market and created a sudden decrease in the interbank rate.

“Under the circumstances, the BI rate could not immediately be decrease like the interbank rate as inflation was high. Now, inflation is better controlled and the fuel subsidy is not as big as before,” said BI deputy governor Mirza Adityaswara in Jakarta.on Friday

The change in the reference rate, he said further, would better reflect the market’s dynamics. Within the transition period, the central bank will issue both the BI rate and the BI 7-day repo rate.

“Until Aug. 19, BI will announce both the BI rate and the BI repo rate. After that, bank transactions will no longer use the BI rate [as a benchmark],” said BI Governor Agus Martowardoyo.

Currently, the BI 7-day repo rate is 5.5 percent while the BI rate is 6.75 percent. The repo rate is more dynamic in reflecting the money market as it has a short tenor of only one week, compared to the nine-month tenor of the BI rate.

“Along with that, BI will set dynamic deposit and lending rates. The floor and the ceiling rates will be 75 basis points above and below the BI 7-day repo rate,” Mirza said.

Bahana Securities analyst Fakhrul Fulvian said it was likely the change would lead to the bank cutting deposit and lending rates. With cheaper funds, banks will be more likely to offer lower interest rates for savings and loans.

“The interbank money market will see more transactions as banks rely more on the market instead of the central bank. With a more liquid market, there will be more funds that are cheaper,” he told thejakartapost.com. (ags)

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