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Loan growth slows to 21-month low as businesses 'wait and see'
The governor of Bank Indonesia says businesses were in a “wait-and-see” mode as a trade war has increasingly muted global demand and trade, causing economic slowdowns in large countries like the United States, China, Japan, Germany, the United Kingdom and India. Geopolitical risks stemming from Brexit uncertainties have also weighed down growth prospects, he added.
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The Bank Indonesia building on Jl. MH Thamrin in Central Jakarta. (Shutterstock.com/GeorginaCaptures)
B
ank Indonesia (BI) is cutting its benchmark rate for the fourth consecutive month as it aims to boost a weakening economy signaled by loan growth slowing to a 21-month low against the backdrop of a trade war-driven global economic slowdown.
The central bank cut the seven-day reverse repo rate by 25 basis points (bps) to 5 percent, the lowest level since May 2018, backed by stable inflation and attractive yields in the financial market, in support of an accommodative policy for business expansion.
“Loan and deposit rates are expected to go down further as BI eases monetary policy,” BI Governor Perry Warjiyo told the media after a two-day board of governors meeting.
The weighted average deposits rate already dropped 13 bps to 6.57 percent in September compared to the August level. The lending rate also dropped, especially on investments and working capital loans, respectively at 10.11 percent and 10.33 percent.
However, drops in the deposit and lending rates have yet to reflect a boost in demand for loans as lending grew 8.59 percent in September, the weakest growth rate in almost two years since January 2018 and compared with 9.58 percent in August, according to BI data. The Financial Services Authority (OJK) in June slashed the loan growth target this year to 9 to 11 percent from 10 to 12 percent.
“In the future we expect banks to lower deposit and lending rates further so loans and financing can increase,” added Perry. Indonesia’s central bank has in total slashed the benchmark interest rate by 100 bps since July.
Perry said businesses were in a “wait-and-see” mode as a trade war has increasingly muted global demand and trade, causing economic slowdowns in large countries like United States, China, Japan, Germany, the United Kingdom and India. Geopolitical risks stemming from Brexit uncertainties and Middle East conflicts also weighed down growth prospects.
