Thursday, 27 February 2020

Bank Indonesia: Interest Rate Cut to Spur Investments



Laila Afifa

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  • TEMPO.CO, JakartaBank Indonesia (BI) had completed its board of governors' meeting on August 22. The central bank decided to lower the benchmark 7-day reverse repo (7DRR) rate by 25 bps to 5.5 percent.

    BI Governor Perry Warjiyo said the central bank had three reasons for their decision to cut the benchmark 7DRR rate by 25 bps. The first is the low inflation, which was 3.32% in July 2019. The second reason is the stability of investment yields, which Perry said would remain attractive despite interest cut.

    The third reason for the BI rate cut is to push credit growth, which is expected to encourage banks to lower their loan rates, thus allowing businesses to expand.

    According to Perry, an interest rate cut would lower the investment costs that corporates must bear. "Eventually, that would boost investments," he said on Thursday, August 22.

    An increase in investments, he added, will spur economic growth, which is targeted to reach 5.2 percent this year.

    Perry also said that the 7DRR rate cut was done to anticipate global economic slowdown, and as a form of synergy between the central bank and the regulator to maintain the national economic growth rate.

    Bank Indonesia also claimed that the rupiah is stable at its fundamental value as of the last week of August. On August 21, BI noted that the rupiah's point-to-point exchange rate had climbed 0.98 percent from its position at the end of 2018.