"If the deposit rate falls the cost of fund will drop accordingly so there is no reason for banks not to lower their lending rates," Perry Warjiyo said.Jakarta (ANTARA News) - Bank Indonesia (the central bank/BI) is optimistic the decline in the Deposit Insurance Agency (LPS)`s benchmark guaranteed deposit rate by 50 basis points to 6 percent will prompt banks to cut their lending rates soon.
"With the decline in the benchmark guaranteed rate, banks will lower their deposit rates and the cost of fund will drop accordingly. If the cost of fund drops the lending rates will decline soon. I believe the lending rate will decline this year," director of Bank Indonesia`s economic research and monetary policy directorate Perry Warjiyo said on Tuesday.
According to him, the LPS`s guaranteed deposit rate served as a reference for banks to set their deposit rates. Therefore, the decline in the guaranteed deposit rate would prompt banks to lower their deposit rates.
"If the deposit rate falls the cost of fund will drop accordingly so there is no reason for banks not to lower their lending rates," he said.
However, he added he did not know how much the lending rates would decline.
"Every bank has their own target of lowering their prime lending rate to be put in their business plan (RBB). The banks are expected to announce the RBB early March," he said.
He said the prime lending rate consisted of the cost of fund, overhead cost and profit margin. Therefore, if the cost of fund fell the lending rate would go down.
He said Bank Indonesia had no intention to set the lending rate which served as banks` business decision.
"What we want is that banks lower their lending rates because BI rate has declined. This is needed to spur our economy which needs stimuli including those from the banking industry," he said.
He said the LPS should no longer use BI rate as a reference because the effective rate used by banks in the market was BI`s monetary operation rate such as discount facility and term deposit overnight which reached 3.75 percent.(*)
Editor: Heru Purwanto
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