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Slim chance for BI to cut benchmark rate in 2017: Citibank
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The logo of Bank Indonesia on the main gate of the central bank's headquarters in Jakarta (Antara/File)
T
he Indonesian branch of foreign lender Citibank predicts that Bank Indonesia (BI) will have limited room to cut its seven-day reverse repo rate next year as it expects inflation to rise as a result of the removal of electricity subsidies.
The government, through the Energy and Mineral Resources Ministry recently announced its plan to remove the electricity subsidy for 900-volt ampere (VA) households in January 2017, a move that is believed would affect people’s revenue and raise inflation.
“Our prediction is that next year BI will have a little room to cut its interest rate,” Citibank Indonesia head economist Helmi Arman told reporters on Wednesday.
This year, the central bank cut its benchmark rate six times, by 25 bps each. Currently the rate stands at 4.75 percent.
Citibank says the government’s monetary policy this year has focused on supporting economic growth through monetary easing, while next year, the government will shift its direction to maintaining the stability of the country’s balance of payments.
Despite the prediction that BI would maintain its rate, Helmi forecasts that banks’ interest rates for their customers could still go down, especially for lending rates.
“Banks take a long time do bring down their lending rates because their non-performing loans [NPL] are still high this year. In 2017, however, [we predict] the economy will improve and the number of NPLs will drop. As a result, banks’ lending rates will also decline,” he said. (win/evi)
