Bank Indonesia’s Rate Cut Gives Positive Signals

KOMPAS/ALIF ICHWAN

Bank Indonesia (BI) Governor Perry Warjiyo invites questions from reporters during a press conference on Thursday (18/7/2019) at the bank’s Jakarta headquarters. Perry, along with BI deputies Dody Budi Waluyo and Erwin Rijanto, and BI senior deputies Mirza Adityaswara and Sugeng, announced that the latest Board of Governors Meeting had decided to reduce the benchmark interest rate by 25 basis points (bps) to 5.75 percent, the deposit interest rate by 25 bps to 5.00 percent and the lending interest rate by 25 bps to 6.50 percent.

Bank Indonesia (BI) finally cut its benchmark rate by 0.25 points on Thursday after maintaining the rate at 6 percent since November 2018. The cut was met with a positive response.

JAKARTA, KOMPAS — The decision of BI to lower its benchmark interest rate by 25 basis points to 5.75 percent received a positive response from businesspeople, who said that the cut gave a positive signal and at the same time could improve market confidence in the Indonesian economy.

The rate cut decision was made at the end of the central bank’s two-day meeting on 18 July, 2019. Previously, the BI reference rate had been kept at 6 percent since November 2018.

The chairman of the Indonesian Chamber of Commerce and Industry (Kadin), Rosan Perkasa Roeslani, said BI\'s decision was in line with the expectation of businesspeople. "This sends a positive signal to the economy in Indonesia," he told Kompas on Thursday when asked to comment on the rate cut decision.

The chairman of the Indonesian Food and Beverage Association, Adhi S. Lukman, hoped that the cut in BI’s benchmark rate would be immediately followed by a reduction in lending rates. If the lending rate is lowered, investment will increase, he said.

Meanwhile, the director of finance and strategy at state-owned Bank Mandiri, Panji Irawan, said the cut in BI’s benchmark rate could lead to the reduction of deposit rates, which would, in turn, reduce the costsof funds of the banking industry.

The director of state owned Bank Tabungan Negara (BTN), Mahelan Prabantarikso, said, BTN would follow BI’s move by also lowering its interest rates.

KOMPAS/ALIF ICHWAN

Bank Indonesia (BI) Governor Perry Warjiyo (third left) answers questions from reporters during a press conference on Thursday (18/7/2019) at the bank’s Jakarta headquarters. Perry was accompanied by (from left) BI deputy Dody Budi Waluyo, BI deputy Erwin Rijanto, BI senior deputy Mirza Adityaswara and BI senior deputy Sugeng to announce the results of the BI Board of Governors Meeting.

Attractive

Speaking at a press conference, BI Governor Perry Warjiyo said the benchmark rate was cut following the easing of global financial uncertainty triggered by signals of the easing of monetary policy by the US central bank.

The other considerations, according to Perry, also included the country’s low inflation and the easing of the US-China trade war.

The head of the Center for Macroeconomic Studies (LPEM) at the University of Indonesia, Febrio Kacaribu, believed that Indonesia’s stock and bond markets would remain attractive to investors despite the cut in the benchmark rate.

Perry said foreign funds entering Indonesia reached US$9.7 billion or about Rp 180 trillion as of June, 2019 .

Deposit Insurance Corporation (LPS) commissioner Destry Damayanti hoped that the decline in BI\'s benchmark interest rate would lead to a decline in lending rates so that business activities would increase. (CAS/KRN/KEL/TRA/ARN)