Indonesia: Cut in interest rate would help push credit expansion: ADB – 27 Sep 2017

  • The Manila-based Asian Development Bank (ADB) said Bank Indonesia cutting its reference interest rate would help push credit expansion and economic growth.
  • “The impact certainly would not come all of a sudden, but it would be a process of gradual development”, an economist of ADB Priasto Aji said.
  • In two success months last week, Bank Indonesia cut again its BI 7-day Reverse Repo Rate by 25 basis points from 4.5% to 4.25%, after a cut from 4.75% to 4.5% in Aug 17.
  • Priasto said the cut in reference interest rate could support adjustment in bank lending rate although it would also take time.
  • In addition, an increase of up to 10% in lending rate could be reached in 2017 with other policies giving flexibility for banks in managing liquidity, he said.
  • He said the central bank could yet slash its reference interest rate toward the end of 2017 considering the risk of normalization in the policy of The Fed (US Central Bank) and inflation which is expected to continue to be under control until 20187.
  • “Rate cut is still possible on domestic condition with inflation well under control,” he said.
  • The cut in BI 7-day Reverse Repo Rate was followed with a 25 basis point cut in the interest rates on Deposit Facility to 3.5% and on Lending Facility to 5% effective as from 25 Sep 17.

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