For the third consecutive months, Indonesia Deposits Insurance Corporation cut the guarantee interest rate - Photo: Special

JAKARTA (TheInsiderStories) – For the third consecutive months, Indonesia Deposits Insurance Corporation (IDIC) cut the guarantee interest rate, the official told media on Tuesday (11/19). The latest policy the agency cut the rate by 25 basis poin (bps) and will be implemented from Nov. 20, 2019 until Jan. 24, 2020.

“The guarantee interest rate will be applied for rupiah deposits of 6.25 percent, and foreign deposits in commercial bank of 1.75 percent,” Chairman of IDIC Halim Alamsyah said while added Rupiah deposits in rural banks will be in 8.75 percent.

He continued,  the decision was according to several factors. One of them was the decreasing of banking interest rate after easing of benchmark rate around 100 bps in July until October 2019.

“The banking interest rate in 62 benchmark banks decreased by 12 bps to 5.48 percent in Oct. 15 until Nov. 11, 2019 period,” he said.

Going forward, IDIC viewed that the banking interest rate still has an opportunity to decrease as the easing of benchmark rate has only been absorbed 50 percent by the banks. It will also be supported by the better liquidity, as well as the improvement of deposits growth.

The other factor that supported IDIC’ decision was the balance of loan and deposits growth, so made the banking’s liquidity ratio decreased. In September 2019, the banking loan to deposit ratio (LDR) declined to 93.76 percent from 94.04 percent in Aug, 2019.

In the next three months, banking’ LDR will be in lower trend, supported by BI’ continued easing. However, banks in middle class will experience more pressure of liquidity than banks in upper and lower class.

“The last factor that contributed to IDIC’ decision was the maintained of financial stability, in line with decreasing of global volatility,” said Alamsjah.

In the future, IDIC will monitor recent situation that impacts to banking liquidity. IDIC also opens for future adjustment of guarantee interest rate, in line with the newest condition of deposits rate and macro econony and financial assessment.

Previously, BI make a fourth straight cut during this year, after decided to cut the BI-7 days reverse repo rate by 25 bps to 5 percent. The central bank also cut the Deposit and Lending Facility by 25 bps to 4.25 percent and 5.75 percent, respectively.

BI’ Governor Perry Warjiyo, said the policy is consistent with inflation estimation and return on the domestic financial investment. He explained, this policy was also make by paying attention to external and internal situations.

Externally, said the governor, world economic growth has been slower, although financial market uncertainty has eased slightly after the United States (US) – China trade agreement in October 2019. The weakening of global economic growth is influenced by decline in trade volume due to tensions between US and China.

He noted, the US economy is also slowing down due to the declining confidence of economic actors. Similar thing also occurred in Europe, Japan, China and India. This condition, he adds, had an impact on the decline in global oil and commodity prices, which subsequently led to weak inflationary pressures.

“Various countries responded to this situation by loosening monetary policy and providing fiscal stimulus,” Warjiyo said.

Meanwhile, from the domestic side, export growth slightly improved amid global demand and declining global commodity prices. The improvement was influenced by manufactured export products such as motor vehicle exports to ASEAN countries and gold exports which grew positively.

In the next round, the policy mix pursued by BI and the government is expected to maintain the Indonesian economic growth. In 2019, economic is targeted to grow in the range of 5.0 – 5.4 percent and 5.1 – 5.5 percent in 2020.

Written by Staff Editor, Email: theinsiderstories@gmail.com