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Guaranteed interest rate may be cut further: LPS
.The Deposit Insurance Corporation (LPS) is preparing to make another cut in its guaranteed interest rates this month, subject to stability in the US Federal Reserve Rate and Bank Indonesia (BI) policy rate.
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A receptionist answers a phone call at the office of the Deposit Insurance Corporation (LPS) in Jakarta. Another cut in the LPS' guaranteed interest rate is expected in May, subject to the stability in the Federal Reserve Rate and Bank Indonesia policy rate. (Kontan/Baihaki)
T
he Deposit Insurance Corporation (LPS) is preparing to make another cut in its guaranteed interest rates this month, subject to stability in the US Federal Reserve Rate and Bank Indonesia (BI) policy rate.
The LPS cut the LPS rate by 25 basis points (bps) to 7.25 percent in March. There was the possibility of cutting the rate further as long as other benchmark rates remained stable, said LPS commissioner Fauzi Ichsan.
"An additional 10 to 20 bps cut in the next six month is possible if the Fed's Funds Rate is stable and the BI policy rate, either the BI Rate or the seven-day repo rate, is maintained," he told thejakartapost.com in Jakarta on Monday.
However, he continued, unlike BI’s policy rate, which adjusted bank interest rates, the LPS rate moved in the opposite direction. The adjustment in bank rates would affect the LPS rate.
"The LPS rate is a mirror of the banks' interest rates. It is backward looking in nature, while BI’s policy rate is forward looking and is determined by considering the future conditions," Fauzi said.
The LPS rate, he further explained, was formulated by combining the interest rates in 58 banks using statistical measures and formulas. Any cut in the bank rates is likely to be followed by a cut in the LPS rate. (ags)
