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Coordinating Minister for the Economy Boediono has welcomed
the central bank's move to cut the key interest rate by 25 basis points
after inflation eased in June.
"I think it is a good step, in which the (rate) reduction is gradual,"
Boediono said Friday.
"Hopefully, the macroeconomic conditions will allow further cuts," he
said.
Bank Indonesia lowered its benchmark interest rate for the second time
in three months Thursday, from 12.50 to 12.25 percent.
The rate cut has revived hopes of a further reduction in the BI rate
and a reduction in the high price of commercial lending. Reductions to
the base lending rate usually translate into cheaper credit, which
stimulates the economy and fuels business growth.
Bank Indonesia Governor Burhanuddin Abdullah was reported Friday as
saying the key rate could fall to around 10 percent if on-year
inflation fell below 8 percent at year-end.
But a central bank official later said the level Burhanuddin mentioned
was not Bank Indonesia's target, and would depend on inflation and
other factors, including oil prices and U.S. interest rates.
Boediono said it was important to keep inflation at a low level. "That
will be the starting point for a further cut in interest rates," he
said.
Inflation dropped in June to 15.5 percent after rising to 15.6 percent
in May. Core inflation, which excludes energy prices, rose to 9.6
percent in June from 9.5 percent in May.
Meanwhile, some banking company shares rose on the Jakarta Stock
Exchange on Friday, as investors bet that BI's move to cut interest
rates would trigger a rise in lending activities.
"A lower interest rate signals economic growth," said Darmawan Halim, a
banking analyst at the Jakarta-based PT Mandiri Sekuritas as quoted by
Bloomberg. "This will give a boost to banks."
The Jakarta Composite Index added 7.88, or 0.6 percent, to 1347.91 at
the 4 p.m. local-time close. The index rose for a seventh day, matching
a winning streak ended Dec. 13. More than two shares rose for each that
fell. For the week, the Jakarta composite advanced 2.9 percent, the
biggest weekly gain since the period ended May 12.
Heavyweight Bank Mandiri ended up 0.6 percent at Rp 1,720, Bank Central
Asia closed up 3.5 percent at Rp 4,400, while Bank Danamon Indonesia
rose 3.6 percent to Rp 4,300.
"Banking stocks are moving a lot today because of the interest rate cut
yesterday," said Mardesiana, an analyst at PT Kresna Graha Sekurindo in
Jakarta. "Companies in general in Indonesia will get cheaper loans,
although lending rates will usually be adjusted" a few months after the
rate cut by the central bank.
The rupiah closed higher Friday at Rp 9,075 to the dollar from
Thursday's Rp 9,130 also on positive sentiment caused by the rate cut,
dealers said.
Dealers said foreign funds bought the local unit for purchases of
Indonesian shares and bonds after the benchmark rate cut.
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