Monday, March 8, 2010
Central bank keeps key rate low to push bank lending
The central bank on Thursday kept its benchmark interest rate at 6.5 percent for the seventh straight month to promote bank lending in the hope of encouraging continued economic recovery and growth.
The 6.5 percent rate is “quite conducive to support the economic recovery process and bank intermediation”, Bank Indonesia (BI) said in a statement. It said the rate is in line with this year’sinflation estimate of between 4 and 6 percent.
Inflation in February rose 3.81 percent from a year earlier, slightly up from 3.72 percent in January, according to the Central Statistics Agency.
“I expect banks can cut lending rates this year,” said Standard Chartered economist Eric A. Sugandi.
He said the outlook on the global picture and the domestic economy had turned positive, which would lower credit risks for banks.
He could not estimate how much the lending rate cuts would be. But the central bank estimates lending growth could expand from 17 to 20 percent this year, up from 10.7 percent in 2009, to support a 5.2 percent economic growth. Last year the economy grew by 4.5 percent.
State-run banks, BI, the Industry Ministry and the State-Owned Enterprises Ministry met last week to encourage banks to gradually cut lending rates to support the real sector. State-Owned Enterprises Minister Mustafa Abubakar said state-run banks might cut rates by 1 percent to 2 percent.
According to BI, lending rates are now hovering above 12 percent on average.
BI also said its monetary policy was well-communicated in February as indicated by the declining rate of interbank loans to 6.17 percent. The yield of BI bills was relatively unchanged, and the yield of government bonds dropped very slightly by 0.01 basis points — 100 basis points are 1 percent.
BI Deputy Governor Hartadi A. Sarwono said foreign ownership in BI bills had reached Rp 59.8 trillion (US$6.46 billion) as of March 3, up from Rp 59 trillion at the end of February. Foreign ownership in government bonds rose to Rp 118.4 trillion up from Rp 117.6 trillion.
Hartadi also said capital inflows has been a bit slow, but he did not elaborate.
Indonesia’s foreign exchange reserves at the end of February rose $0.1 billion to $69.7 billion from the previous month.
Analysts said BI would not raise its benchmark interest rate until at least the second half of this year. BI anticipated no significant upcoming inflationary pressures in the first half of 2010.
BNI economist Ryan Kiryanto said inflation might rise starting in July due to higher domestic demand for food and transportation ahead of the Idul Fitri holiday. “Imported inflation as a result of rising oil prices would drive BI to raise its rate in stages,” he said, predicting a 7 percent BI rate by the year’s end.
Eric estimated BI would raise its rate up to 7.5 percent, considering inflation might accelerate as the government might raise the price of subsidized fuels due to rising oil prices.
But Bank Danamon economist Helmi Arman said BI might even delay the rate rise until early 2011 because of low inflation.
“Policy makers have been implicitly ruling out rate rises for the immediate future, as they see no significant inflationary pressure in the first half of 2010. We share that view and even think they will hold on for longer — until early 2011,” he said.
