"We are making every effort so that in one month, the lending rates are lowered and results are obvious by the end of the year. The lending rate would stand at around 9.0 percent," Darmin said.
Jakarta (ANTARA News) - In order to make the countrys economy more efficient and competitive as it faces the ASEAN Economic Community, the Indonesian government is formulating steps to bring down banking interest rates to a single digit.

Vice President Jusuf Kalla said banking interest rate must be brought down to give a competitive edge to the Indonesian economy vis-a-vis other ASEAN member countries.

"We have no other way to compete with ASEAN member countries than making our economy efficient," the vice president said on Tuesday (Feb.23).

Kalla acknowledged that low interest rate will lead to fluctuations in the financial market but said on the whole, the economy will become better.

"Overall, the economy will become better. Of course there are some economic sectors that will have to make adjustments," the vice president added.

Chief Economic Minister Darmin Nasution said the government is finalizing steps to lower the lending rate which is still high and a burden on the people.

"We are making every effort so that in one month, the lending rates are lowered and results are obvious by the end of the year. The lending rate would stand at around 9.0 percent," Darmin said on Tuesday.

In the meantime, the Board of Governors of Bank Indonesia (BI) on Thursday (Feb 18) decided to lower the Indonesian central banks benchmark rate (BI Rate) by 25 basis points to 7.0 percent from the previous 7.25 percent.

The BI board of governors also set the interest rate of deposit facility at 5.0 percent, lending facility at 7.5 percent and lowered the primary reserve requirement to 6.5 percent from 7.5 percent earlier.

"This decision is in line with the previous BI statement that the monetary relaxation policy is becoming more open along with macroeconomic stability and low inflation in 2016," BI Governor Agus Martowardojo said.

Earlier, Darmin Nasution said at the Vice Presidential Office that deposit interest rates that banks and state-owned enterprises (SOEs) seek are still higher than the inflation rate.

According to the minister, banks will not suffer a loss if the interest rate is lowered. Thus, by the end of 2016, Darmin hopes the interest rate would be down to a single digit for corporate lending. As for the higher lending rates for small companies and others, the government can play its role through a smallholders credit (KUR) scheme.

Agus Martowardojo said monetary relaxations such as the lowering of the BI Rate and primary reserve requirement should encourage banks to adjust their interest rates and expand credit to the people.

"Banks should follow the lowering of the BI Rate and banks primary reserve requirement which will enable them to better manage their liquidity and adjust their lending interest rates," noted Agus.

He said that BI in the first two months of 2016 had lowered its benchmark rate twice by 25 basis points, bringing it down from 7.5 percent to 7.0 percent. It also lowered the banks primary reserve requirement to 6.5 percent from 7.5 percent previously.

However, according to Chief Economic Minister Darmin Nasution, the government will not coerce banks into lowering interest rates though these continue to be high as of now.

"There will be no coercion," Darmin said.

He said the government is making various kinds of efforts to bring down the interest rates by coordinating with the central bank (BI), the Financial Service Authority (OJK) and the Deposit Insurance Agency (LPS).

However, the efforts to facilitate the lowering of the interest rate do not amount to an intervention because the government is planning measures to improve the economic climate within a month which would lead the banks to adjust their interest rates to the current conditions.

One such effort involved the governments plan to call on the ministries/government agencies and state-owned enterprises (SOEs) -- which so far ask for a special rate if they want to place their funds in a deposit -- to stop asking for such special interest rate facility.

"We think it is important for ministries/government agencies and SOEs to have limits if they want to place money with the banks. They should not ask for a higher rate of interest only because they want to place (a large amount of money, for example) Rp1trillion," the chief economic minister noted.

He said that if the ministries/government agencies or SOEs want higher rate of interest, they should put their money in other financial instruments such as bonds that have a coupon with an interest rate which is above the average deposit rate.

Darmin, who is a former governor of BI, remarked that the government will not issue a special regulation on this, but the Finance Ministry and the SOE Ministry can have a dialogue with the relevant ministries/government agencies and the SOEs.

In other efforts being made by the government to push the interest rates down is to maintain the inflation rate within a range of four percent, to ask the BI to conduct studies about the economic conditions and to request the OJK to issue a policy which would prevent the rise of a (bank) interest rate exceeding the average rate.

He said the various steps taken by the government were all interrelated. Therefore, coordination was required among the government and all relevant agencies, such as the BI, the OJK and LPS.

In order to bring down the banking interest rate to a single digit, the government has formulated for steps.

Darmin said the first step is to ensure that the inflation growth remains within a range of 4.0 percent. A higher inflation could affect peoples savings.

The second step is to communicate with the relevant ministries and state-owned enterprises (SOE) so that their deposits in the bank do not use the bank's special rate facility that may trigger a rise in the interest rates.

The special rate constitutes a special treatment given by banks to priority customers who have large funds and are willing to save their money at an interest rate higher than the normal one.

"If they want to deposit it with banks, the logical interest rate will be 5.0 percent, or one percent above the inflation rate, so that the real interest rate remains positive. That way, there would be no reason for them to say that keeping the savings in the banks is not profitable. If one wants a high interest rate, he or she should invest in the government state debentures (SUN)," noted Darmin.

The third step is that inflation should remain under control and SOEs do not use a special rate for their deposits. This will allow the BI to make an assessment and adopt an interest rate policy which keeps it within a range of four or five percent.

Darmin said as the fourth step, the OJK will take measures to make the operational cost more efficient at overhead level. As part of this measure, the special rate would be increased and it would not exceed 100 percent basis points from the average interest rate.

With the four steps being effectively implemented in the coming one month, Darmin is convinced the lending rate will gradually go down and will adjust itself in alignment with the efforts made by the government, the BI, the OJK and the Saving Guarantee Institution.(*)

Reporter: Andi Abdussalam
Editor: Heru Purwanto
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