"If the lending rate can be kept down, our economy will grow more rapidly and evenly distribution of development gains can be ensured," the special assistant to the chief economic minister for economic policy monitoring, Purbaya Yudhi Sadewa said here on Wednesday.
The high lending rate has very much benefited the banking industry at the expense of economic growth, he said.
"The high lending rate has made banks` profit larger. It is good for the banks but it is bad for the economy," he said.
He said the government has made every effort to encourage state-owned banks to lower their lending rates. However, they are reluctant to do so on the ground they will suffer losses.
"The President once summoned chief executive officers of state-owned banks to come to the state palace. He asked them to cut their lending rates but they refused to do so for various reasons," he said.
While the budget absorption has not been optimum, if the government pushes through a plan to raise the price of subsidized fuel oil, liquidity in the banking system will become smaller, he said.
As a result, banks will compete with one another to attract third party funds by raising interest rate.(*)