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Not much room left to lower 7-day repo rate: LPPI
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Bank Indonesia headquarters on Jl. M.H. Thamrin, Central Jakarta (JP/Wienda Parwitasari)
T
he Indonesian Banking Development Institute (LPPI) has said that Bank Indonesia does not have much room to further lower its 7-day repo rate after the central bank cut the interest rate for two consecutive months.
The current repo rate stands at 4.25 percent following its reduction by 25 basis points in August and another 25 basis points in September, after it was unchanged at 4.75 percent for almost a year.
LPPI director Krisna Wijaya said the relatively stable inflation rate so far this year – between three and four percent – also contributed to the cause.
“Therefore, BI can only rely on the opportunity of lowering lending rates,” Krisna said at a seminar in Jakarta on Thursday, adding that the Indonesian lenders’ current net interest margin averaged a moderate 5.3 percent.
Nevertheless, lenders do not have to be deterred by the possibility of seeing further lowering of rates. “As for the banking industry, we have seen improvements in various indicators despite the existing challenges,” he said,
According to KPPI data, indicators such as the cost-to-income (BOPO) ratio improved to 79 percent in July, compared to 81 percent in the same period last year.
Other factors such as capital adequacy ratio (CAR) and non-performing loan (NPL) rates are also recovering at 23 percent and 3.2 percent respectively, even though the changes were not relevant.
“Therefore, we expect this positive trend to keep going in 2018,” said Krisna. (bbn)
