Indonesian banks urged to cut deposit and loan rates immediately
JAKARTA - Bank Indonesia (BI) urges the nation’s lenders to immediately adjust their deposit and loan rates with the central bank's benchmark interest rate that has been slashed 25 basis points (bps) to 6.75 per cent.
BI’s economy and monetary policy executive director Juda Agung said the central bank has accumulatively slashed its key rate by 75 bps since November 2015. At the same time, the primary reserve replacement ratio (GWM) has been cut by 150 bps. However, the banking industry has, on average, only cut their deposit rate by 7 bps and loan rate by 4 bps.
"It is not yet effective. Therefore, BI's focus is to make a more effective transmission of policies by strengthening monetary operations and keeping the term structure [of interest rates] consistent. Currently, a one week term structure is 5.7 per cent; we will cut it," he said in Jakarta on Thursday.
The term structure of interest rates, also known as a yield curve, is the relationship between the interest rate or bond yield and several different terms of maturities. "For the short-term, one week, 5.5 per cent. The long term, 12 months, 6.75 per cent. Similar to BI's rate," Juda said, adding that the change would be effective on March 18.
For this month, the central bank decided not to cut its GWM, since the past GWM cut by 100 bps has just been applied on March 16. With such a cut, Juda expected to see Rp 34 trillion (US$2.59 billion) of liquidity being cashed out and spur the lending growth by 14 per cent year-on-year in 2016.
"Banks are expected to immediately respond by lowering interest rates on both deposits and loans and most importantly credit availability. What is most important to businesses is credit availability," he explained.
BI executive director of communication Tirta Segara projected the economy to grow at a faster pace in the first quarter of the year, driven by consumption and government investment. The central bank expected Indonesia's economic to grow 5.1 per cent this year, better than last year's 4.79 per cent.
"Increased government investment is driven by the acceleration of the government's capital expenditures, which appeared to be disbursed fast in the first two months of 2016," he said, adding that the growth in private investment was expected to follow in the next month.
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