BI expounds on rationale behind benchmark rate cut

BI expounds on rationale behind benchmark rate cut

Bank Indonesia Governor Perry Warjiyo (ANTARA FOTO/Aprillio Akbar/pd).

Jakarta (ANTARA) - Bank Indonesia (BI) Governor Perry Warjiyo brought to light three reasons behind the central bank's decision to cut its benchmark interest rate to 5.5 percent on Thursday.

One of the determining factors is the forecast of low inflation rate for 2020, he noted.

He remarked that the 2020 inflation rate, projected at three percent, is yet below the mid-level of 3.5 percent, give or take one percent.

Warjiyo elaborated that the second reason was market confidence in the yield of investment, which will continue to remain attractive despite a drop in the key interest rate.

This is apparent from the 2.5 percent real policy interest rate differential and nominal interest rate differential, while the cover is 4.16 percent. If the uncover is without risk premium, it will be 5.74 percent, he explained.

He stated that the third reason is related to the banks' efforts to raise the amount of credits that is expected to drive the nation’s economic growth.

The BI’s board of governors’ meeting, on Wednesday and Thursday, reached a decision to reduce its 7-day Reverse Repo Rate (BI7DRR) by 25 basis points to 5.50 percent, from 5.75 percent earlier.

Furthermore, it was agreed at the meeting to reduce the deposit facility rate by 25 basis points to 4.75 percent, and lending facility rate by 25 basis points to 6.25 percent.  

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