Bank Indonesia (BI) decided to relaxes the macro-prudential intermediation and loan to value (LTV) ratios to strengthening banking intermediary function -Photo: Special

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) gives a signal to lower its 7-Days Reverse Repo (BI-7DRR) in 2020 to support Southeast Asia’s biggest economic growth, local media reported on Monday (11/09). The central bank states the monetary policy remains accommodative amid the global economic slowdown.

“The policy stance remains accommodative, the benchmark interest depending on 2020 data. But, the stance is still loose,” said BI’s director of economic and monetary policy department, Endy Dwi Tjahjono in East Nusa Tenggara citied of Kompas.

So far, the central bank has cut its benchmark interest rate four times, with a total of 0.75 percent. The last cut in September was 0.25 percent to 5 percent, the lowest since June 2018.

The central bank sees economic growth is in the position of 5.1 percent this year, and around 5.1 percent to 5.5 percent next year. While bank credit growth is estimated to still not be significant, which is growing 8 percent this year and is in the range of 10-12 percent next year.

The governor Perry Warjiyo asserted countries in the world are currently facing various challenges due to the global economic situation. The continuing trade war between the United States (US) and China, the increased risk of Brexit and other geopolitical risks causes global economic growth slow.

“If the trade war continues, then world economic growth can be below 3.1 percent or even lower, 2.9 percent,” he said in one seminar in Jakarta, days ago.

Tjahjono explained, besides monetary policy, BI took other steps to support economic growth, including encouraging micro and small and medium enterprises (MSMEs) to assist in digitizing and exporting.

Moreover, the central bank also encouraged the formation of the halal industry supply chain so that Indonesia could become an exporter of halal products, Tjahjono said.

With a lower benchmark interest rate, it is hoped that banks will also reduce their lending rates so that credit growth is boosted, Tjahjono added.

Last month, the central bank kept the rate at 5 percent, deposit facility rate 4.25 percent and lending facility rate 5.75 percent at the latest meeting. At the same time, BI also relaxed the reserve requirement for commercial and sharia banks by 50 bps to 5.5 percent and 4 percent, respectively.

After the board meeting, Warjiyo said the policymakers to boost the liquidity in the market. He also stated, “The policy was taken to maintain economic growth amid slowing global economy.”

He continued, through the policies, the central bank aimed to drive the loan growth and enlarge financing at the same time stabilizing the financial system. In addition, the policymakers want to kept the countercyclical capital buffer at zero percent and the buffer ratio of macro-prudential policy at 4 percent with repo flexibility at 4 percent.

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