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Support grows for BI’s plan to ditch BI rate
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Bank Indonesia is set to announce a new measure on Friday, abandoning its benchmark interest rate and changing to a seven-day reverse repurchase (repo) rate by August. The policy has attracted support from industry players, as they expect a more market-oriented benchmark interest rate. (Tempo/-)
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ank Indonesia’s plan to abandon its current benchmark interest (BI) rate system in August and change to a seven-day reverse repurchase (repo) rate has gained support from industry players, as they expect a more market-oriented benchmark interest rate.
The plan is among measures being prepared to lower the country’s interest rate. The government has cut its micro credit program (KUR) rate from 12 percent to 9 percent. The Financial Services Authority (OJK) has also given incentives to efficient banks in opening new branches.
Bank Negara Indonesia (BNI) treasury director Panji Irawan said that, in general, the bank was ready for the change. The announcement, which is expected on Friday and will be adopted in August, would make the BI rate more dynamic as it would change on a weekly basis instead of monthly.
"It is good and will be much fairer as it will be decided by the market through an auction mechanism. Our prediction is that after the adoption, the rate will decline by 100 basis points to 5.75 percent from the current 6.75 percent," he told thejakartapost.com on Tuesday.
The overnight interest rate, commonly used as a benchmark for private loans among companies, is more relevant as a benchmark as it reflects market conditions, according to Deutsche Bank.
If the measures are applied, it would be positive for banks and would thoroughly expand the credit market, Deutsche Bank analyst Raymond Kosasih wrote in a recent research report.
As previously reported, Vice President Jusuf Kalla’s spokesman Husain Abdullah told The Jakarta Post that the government was aware of the plan, which aimed to drastically lower the interest rate. The government expected to have single digit loan rates by year-end.
“Although we have no authority over BI and its monetary policy, which by law is independent from the government, the plan has been intensively discussed with us,” Husain said on Tuesday. (ags)
