Indonesia says key rate "already low", eyes virus outbreak

Bank Indonesia governor Perry Warjiyo

JAKARTA: Indonesia's benchmark interest rate of 3.50% was already low, central bank governor Perry Warjiyo said on Monday, while also underlining the central bank's efforts to accelerate bank lending ahead of a policy review this week.

"We're continuing to push for interest rate transparency (among banks) because BI's benchmark has gone down sharply since last year. We've cut six times" the Bank Indonesia (BI) governor told a hearing with parliament's finance commission, referring to a total of 150 basis point reduction since the coronavirus pandemic began.

"At 3.50%, we view the rate as already low and this is to back up the rupiah," he said, adding that BI was focusing on trying to push down lending rates for new loans.

BI is scheduled to review its policy in a two-day meeting ending on Thursday. A Reuters poll of 26 analysts predicted BI would keep the key rate unchanged for a fourth straight meeting.

At its past meetings, Warjiyo had said BI held rates to anchor the rupiah by making sure returns on Indonesian assets were attractive and to prevent capital outflows.

The governor told lawmakers the rupiah had so far remained "stable" at 14,300 a dollar, but BI was monitoring potential pressure from global uncertainties especially in relation to U.S. markets.

On the domestic front, Warjiyo said BI was assessing the impact of a recent rise in COVID-19 cases on people's mobility, corporate performance and financial market stability.

"The spillover to stability of the financial system is something that we need to anticipate very much," he said.

He also said data so far had suggested Indonesia's loan growth could turn positive in the second quarter, supporting BI's forecast of 5% to 7% loan growth in 2021.

On top of cutting rates, BI has injected 819 trillion rupiah ($57.62 billion) of liquidity into the financial system during the pandemic, including 115.87 trillion rupiah purchases of government bonds in the primary market. - Reuters

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