JAKARTA: Indonesia’s central bank raised interest rates six times this year, yet consumer lending rates are still falling in South-East Asia’s biggest economy.
Between May and September, when Bank Indonesia raised its benchmark rate by 150 basis points, average rates for consumer loans fell by 44 basis points to 11.9%, according to the most recent data from the nation’s Financial Services Authority. Rates for investment loans rose only 25 basis points.
The central bank raised its policy rate by another 25 basis points since then, and governor Perry Warjiyo has signalled he is ready to do more next year to stem a sell-off in the currency if emerging markets remain under pressure.
Lenders aren’t passing on those rate increases though, worried about still subdued consumer borrowing and an overhang of bad debts.
“We don’t feel there is a need to raise our rates again until year-end,” said Jahja Setiaatmadja, president director of PT Bank Central Asia, the nation’s biggest lender by market value.
The company’s net interest margin – the difference between deposit and lending rates – is “still sufficient,” he said.
Official data shows average one-month deposit rates for customers climbed 69 basis points to 6.28% between May and September.
The central bank has been tracking the US Federal Reserve with rate hikes in order to keep Indonesian assets attractive to foreign investors.
At the same time, the drop in lending rates is delivering a timely shot in the arm for the economy, which has been expanding around 5% for much of this year.
Credit growth rose 13% in September from a year earlier, up from 7.6% at the beginning of the year, according to data from the Financial Services Authority.
“Looking ahead, demand for credit has the potential to increase along with the improving economy,” said Dody Budi Waluyo, Bank Indonesia’s assistant governor.
The “tightening transmission is going well” and provided a strong signal of policymakers’ commitment to lower the current-account deficit and improve the attractiveness of financial markets, he said. — Bloomberg