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The central bank's latest rate cut continued to elicit mixed
reactions, with doubts remaining as to whether it can actually help
lift the country's real sector out of its recent slowdown.
"It's positive, but still far from what the business community and the
real sector had been hoping for," Industry Minister Fahmi Idris said
Wednesday.
"A rate of somewhere between 9 and 10 percent is what business and
industry are looking for."
Bank Indonesia trimmed its key rate Tuesday by half a percentage point
to 11.75 percent amid easing inflation in an effort to help
reinvigorate the country's recently flaccid economy. This was the
central bank's third rate cut since April, after the BI rate -- which
is used as a reference for bill sales and bank rates -- had been hiked
to 12.75 percent in December.
Indonesia's economy grew by a less-than-expected 4.6 percent during
this year's first quarter, compared to 6.3 percent during the same
period last year, as high inflation and interest rates curbed consumer
spending and borrowing, including consumer-finance and business loans.
However, Fahmi still expressed appreciation for the BI decision, saying
the lower rate would eventually lead to lower bank lending rates to the
real sector.
Freddy Sutrisno, Indonesian Automotive Industry Association
secretary-general, agreed with Fahmi that business and industry had
been hoping for a more aggressive cut that would bring the BI rate down
to a level similar to last year's 10 percent.
"If this were to transpire, then it would undoubtedly help out the
automotive sector, which has recently seen a drop in sales as a result
of the high rates," he said, while adding that he wanted to see further
rate cuts and more support for manufacturing from both the government
and banking sector.
Coordinating Minister for the Economy Boediono welcomed the decision by
BI to cut its rate, and reiterated the government's stated commitment
to improving the investment climate. Likewise, Finance Minister Sri
Mulyani Indrawati said that the government would also push for higher
budgetary spending in the second half.
Meanwhile, from the country's property sector, Summarecon Agung
president director Johanes Mardjuki said that the rate cut would help
housing and infrastructure developers, but stressed the need for a
similar reduction in lending rates to help with project financing.
"We hope that the central bank's rate cut will be followed by the banks
lowering their lending rates to the real sector," he said. Eliminating
other elements that contributed to the high-cost economy is also
important if the real sector is to be helped, Johanes said.
The banks are, however, likely to assess their own commercial interests
before starting to cut their lending rates in line with the BI move.
Bank Niaga corporate director Catherine Hadiman said the banks usually
had to wait for the majority of their customers' time deposits to
mature before adjusting rates, thus leading to a time lag.
However, she said that another half percentage point cut would be
possible by then, following Bank Niaga's rate cut of up to 1 percent
earlier this year.
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