JAKARTA (TheInsiderStories) - Indonesia’s central bank kept its benchmark BI rate steady at 7.50 percent and sees there is a window to ease the rate in the future.
The authority also maintained the rate it pays lenders on overnight deposits, commonly referred to as the BI facility (FASBI), at 5.5 percent and lending facility rate at 8 percent.
The board meeting also decided to cut the primary reserve requirement from 8 percent to 7.5 percent, effective from Dec. 1. So far, BI holds the main interest rate unchanged for nine consecutive months.
“With heightened uncertainty in global markets, divergence by European and Chinese central banks, we will remain cautious in conducting monetary policies,” BI Governor Agus Martowardojo told reporters at the press conference on Tuesday.
The government officials and analysts expect the central bank to change its monetary policy to support the government policies packages. The government together with BI and Financial Services Agency had announced series of policy reforms aimed to boost investment, trade and purchasing power, which have helped to fuel confidence in the capital market.
Vice President Jusuf Kalla and Coordinating Minister for Economic Affairs Darmin Nasution stated that Indonesia needs to lower the benchmark rate to help the economy improvement.
Both of them see there is a room to strengthen Rupiah against the U.S dollar for the remainder of the year on the back of capital inflow as investors bet against a potential Federal Reserve rate raise before the end of the year.
“BI should lower its benchmark rate to help the domestic economy and attract investment coming to this country,” Kalla said.
Agus explained further that until September Rupiah dropped 5.35 percent to Rp 13,873 against US$ because of external factors but in October rebound 4.47 percent compared to August value.
Meanwhile, he added, loans by domestic banks expanded 11.1 percent in September from a year earlier, accelerating from a 10.9 percent annual pace in August. He said rising loan expansion is an early sign of recovery for economic growth. It expects the pace to reach 12 percent by year-end.
He further elaborated that the average bank capital adequacy ratio (CAR) of the banks stood at 20.4 percent, Gross non-performing loans (NPL) at 2.7 percent dan net NPL 1.3 percent and third party deposit 11.7 percent compared to last year. (*)