Making Use of the Interest Rate Cut

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.

The decision of Bank Indonesia (BI) to cut its benchmark interest rate has created hope among the business community that the lending rate will also decrease quickly.

The BI board of governors\' meeting on Thursday (18/7/2019) set the benchmark interest rate at 5.75 percent after keeping it at 6 percent since November 2018 in response to the global financial situation that was influenced by the interest rate of the US central bank, the Fed.

The lowering of BI’s interest rates was in line with the Fed\'s statement that it would start lowering interest rates. Some banking analysts have predicted that BI will again reduce its benchmark interest rate in August, given the low inflation rate and the chance for capital inflows into the money market.

In order to have a real impact, BI\'s steps need to be followed with policies from ministries, banks, regional administrations and the world of education that are synergized.

For the business community, a low lending rate is one of the key factors that could attract investments in the real sector. Indonesia at this time, as confirmed by the president-elect Joko Widodo, in his speech about the five-year vision of his government, needs direct investment in the industrial sector, especially for export-oriented and import-substitution industries.

Indonesia needs direct investment to drive continuous and sustainable economic growth. This investment is expected to create employment opportunities and generate foreign exchange. One of our economic problems is the current account deficit and trade deficit. Export-oriented and import-substitution industries that bring in foreign exchange can reduce the trade balance deficit and increase Indonesia\'s competitiveness.

For entrepreneurs, investment decisions and increasing exports are also determined by a number of other things, especially certainty and ease of doing business. The government has tried to cut licensing to increase Indonesia\'s competitiveness as an investment destination and increase exports.

However, investors also need a clear sense of the government’s direction regarding investment and industry. For this reason, it is necessary to map more product details from the primary sectors set by the government, namely food and beverages, textiles, automotive, electronics and chemicals, which will be exported. This will determine the driving force as well as the incentives needed by employers. The direction is also important for government officials from the central government down to the regional administration level.

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.

To obtain high and continuous growth, measurable targets are needed. The measure of performance must also be set in order to determine whether the efforts being made are in accordance with the target.

The vision that the President has conveyed is an outline of the guidelines that must be translated by his assistants, especially the ministers and leaders of state institutions. Therefore, the cabinet that will be formed will also determine the pace of business.