Perry Warjiyo urges the nation' leaders to immediately adjust their deposit and loan rates - Photo by TheInsiderStories.

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) Governor Perry Warjiyo urges the nation’ leaders to immediately adjust their deposit and loan rates with the central bank’s benchmark interest rate that has been slashed four times to 5 percent and the primary reserve replacement ratio by 1 percent.

“BI’ monetary stance has been very accommodating, but the reduction in lending rates is still limited. We expect banks to quickly reduce interest rates and encourage credit to boost the national economy,” Warjiyo said at the Mandiri Investment Forum 2020 in Jakarta on Wednesday (02/05).

Warjiyo noted, last year, credit growth was quite contracted because it was only able to grow 8 percent, far below the target of 10 percent to 12 percent. This year, however, the central bank has forecast the banking credit would accelerate at a faster pace following policy stimulus on the economy and banking liquidity, he adds.

The governor expected that the loan growth would nudge higher between 10 and 12 percent this year. The expected higher economic growth this year would also help spur demand for banking credits, said Warjiyo.

Going forward, according to Warjiyo, the central bank’s monetary policy will remain accommodative. Monetary policy will be directed at keeping inflation under control on target, external stability with the balance of payments, and driving the momentum of economic growth.

BI has also implemented macroprudential policies that provide space for banks to expand funding and encourage intermediation. One of them is through the loosening of the Loan to Value and Financing to Value ratio for property and motor vehicles, Warjiyo said.

The central bank had trimmed its benchmark interest rate by 100 basis points from July to October and, in November, the bank decided to trim reserve requirement ratio for banks by 50 basis points to 5.50 percent for conventional banks and 4.0 percent for Islamic banks, starting this year.

“The money market deepening policy will also be strengthened to support the effectiveness of accommodative monetary and macroprudential policies,” Warjiyo noted, adding the central bank forecast that Indonesia’s economy would expand between 5.1 and 5.5 percent this year compared with its growth target for last year of 5.1 percent.

Statistics Indonesia announced today that the country’ economy grew 5.02 percent annually in 2019 because of weakening investments and exports, the weakest since 2015, slowing from 5.17 percent in 2018. This also means the government failed to achieve the targeted growth of 5.3 percent stated in the 2019 state budget.

Meanwhile, the country’s economic expansion in the fourth quarter slowed to 4.97 percent year-on-year (YoY), the slowest since 2016’s fourth quarter, and contracted 1.74 percent quarter-to-quarter.

Household spending, which accounts for more than half of GDP, grew by 5.04 percent last year, stagnant compared to the 5.05 percent in the previous year because of lowering vehicle sales. Investment – the second largest contributor to GDP growth – expanded 4.45 percent last year, a far cry from the 6.67-percent growth recorded in 2018.

Government spending grew 3.25 percent from 4.8 in 2018, while exports and imports contracted 0.87 percent and 7.69 percent, respectively, last year.

The government is projecting growth of 5.3 percent this year, but finance minister Sry Mulyani Indrawati said that there are downside risks to the forecast because of the coronavirus crisis.

“Slowing global trade amid the US-China tariff dispute had hurt Indonesia’s important commodity exports, while national elections delayed investment decisions,” the minister said, adding the coronavirus outbreak will hit the country’ growth this year.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com