VIVAnews - Economist Head of Bank Negara Indonesia, Tony Prasetiantono had predicted that the central bank would lower its interest rates by 25 basis point to 6.75 percent.
Not only Prasetiantono, Citi’s economists, Johanna Chua and Leon S Hiew also conveyed the same prediction. On a Citi Flash received by VIVAnews, the two economists said the low amount of inflation in June, which was 3.65 percent, was the basis of decisions that would be made by BI Council Governor. The figure (3.65 percent) was lower than earlier prediction, which was 3.85 percent.
“Therefore, it seems BI will still BI Rate by 25 basis point to 6.75 percent and save some space for another decrease after that”, Chua and Hiew said.
Those predictions proved accurate. Today, the central indeed cut its benchmark rate to 6.75 percent.
BI Rate decrease, Prasetiantono said, must be done gradually to keep the rhythm from disrupting Rupiah’s exchange rates.
“Besides, BI must also observe the liquidity condition”, he said to VIVAnews in Jakarta on Thursday, July 2.
However, he also admitted that even though BI Rate was decreased regularly, the banks could not automatically obey the decrease due to the strict condition of liquidity. In fact, banks would not be able to lower their interest rates until the liquidity gets loose.
“So, BI Rate should be lowered slowly”, he said.
If the upcoming presidential elections on July 8 are successful and there is enough capital inflow which will support Rupiah, BI Rate decrease can be continued.
“So that when the liquidity gets loose, the banks can lower their deposit interest rates followed by the credits”, Prasetiantono said.
BI Deputy Governor, Miranda S Goeltom once hinted on decreasing reference interest rates. The central bank predicted that June’s inflation would be low.
According to the Statistics Bureau, June’s inflation was 0.11 percent. Meanwhile, in the calendar year, the inflation was 0.21 percents and the annual inflation (June 2008 to June 2009 was 3.65 percent.
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Translated by: Nataya Ermanti
