JAKARTA (TheInsiderStories) – Bank Indonesia stressed that it could reduce the benchmark rate with a note that macroeconomic and financial stability is maintained. The Governor Perry Warjiyo revealed, the Bank had raised its benchmark interest seven times in recent months, so that the current benchmark interest rate had reached its peak.
“In the future, the benchmark interest rates will decline if we can maintain this stability,” Warjiyo said on Thursday (02/28).
Macroeconomic and financial stability, according to him, can be done through increasing the portion of government bonds for foreigners so that there is a flow of funds into the country. This is done by cooperation with ministry of finance.
This year, Warjiyo said BI has asked Finance Minister Sri Mulyani Indrawati to issue more retail bonds in order to reduce the long-term fiscal burden in the era of high interest rates due to the nature of long-term goverment bonds while retail bonds were more short-term.
On the same occasion, Vice President Jusuf Kalla urged that bank’ interest rates not to be too high and could match loan interest rates in Thailand and Malaysia. In addition to the high loan interest rates, Kalla also highlighted the yield of state bonds not to be too high.
“All ask for 8 percent of the yield. How can the capital market grow, if interest is high,” he added.
Previously, Board governor of Bank Indonesia decided to maintain a BI 7 Days Reverse Repo (BI 7-DRR) rate at 6 percent, a Deposit Facility interest rate of 5.25 percent, and a Lending Facility interest rate of 6.75 percent.
Warjiyo said the decision is consistent with efforts to strengthen external stability, particularly to control the current account deficit within a safe limit and maintain the attractiveness of domestic financial assets. The Bank also continues to pursue a monetary operations strategy to increase the availability of liquidity in driving bank financing.
Furthermore, he revealed, the decision was made in regarding to global and domestic conditions. He considered, world economic tends to be slowed, caused by reduced uncertainty in the global financial market. As an example, he said, Untied States (US) economic growth slowed due to the limited fiscal stimulus, structural problems of the workforce, and the decline in business confidence.
In line with the slowing outlook for world economic growth, global commodity prices are predicted to decline, including world oil prices, as well as the normalization of monetary policy in developed countries which tends to not be as stringent as the original estimates and uncertainty in the global financial market is diminishing.
The increase in the Federal Reserves Fund Rate interest rate is expected to be lower and the reduction in the central bank balance sheet becomes smaller than planned. Global economic and financial developments on the one hand provide challenges in encouraging exports, but on the other hand increase the inflow of foreign capital to developing countries, including Indonesia.
The momentum of economic growth is maintained, supported by domestic demand. Indonesia’s economic growth remained strong at 5.18 percent in the fourth quarter of 2018, up from the previous quarter’ growth of 5.17 percent.
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