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Jakarta Post

Will lower interest rate lead to credit expansion?

PREMIUM
Jakarta   /   Mon, August 5, 2019   /  01:04 pm
Will lower interest rate lead to credit expansion? The Bank Indonesia building on Jl. MH Thamrin in Central Jakarta. (Shutterstock.com/Harismoyo )

Bank Indonesia (BI) lowered its benchmark BI seven-day reverse repo rate by 25 basis points (bps) from 6 percent to 5.75 percent in July — the first interest rate cut by the central bank since September 2017. The rate cut was widely expected and is in line with the stronger Indonesian rupiah and anticipates the United States Federal Reserve’s easing as signaled recently. Other factors such as the manageable inflation rate of around 3 percent and improved political stability, following the Constitutional Court’s decision that confirmed President Joko “Jokowi” Widodo’s reelection, further justified the lower benchmark rate. The impact of the lower rate on bank credit growth may be different from that on the bond market. The lower benchmark rate may have a more immediate effect on the bond market. In 2018, when the central bank raised its interest r...

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.