Banks need time to raise interest rates

Denpasar (Antaranews Bali) - Banks cannot raise credit interests soon, because they need three to five months` transition time after the central bank, Bank Indonesia (BI), increases its key rate, an economic analyst said.

"With adequate liquidity, banks need not raise credit interest directly as they still have adequate time," economist observer Bhima Yudhistira Adhinegara, of the Institute for Development of Economic and Finance (Indef), stated here on Friday.

According to Adhinegare, there are several indicators that prevent banks from directly raising the lending rates.

He explained that banks still need quite strong liquidity, which is indicated by the capital adequacy ratio (CAR), reaching 22.6 percent.

Currently, he added that banks also invest more heavily through the debenture instrument, because the interest offered is also more attractive than the interest on credit.

BI had previously raised its 7-days Reverse Repo Rate, which is its benchmark interest rate, by 25 basis points, from 4.25 percent to 4.5 percent, effective starting on May 18, 2018.

The decision was taken at a meeting of the BI Governor Board on May 16 and 17, 2018, in Jakarta as the central bank`s efforts to maintain Indonesia`s macroeconomic stability amid the fluctuating global economic situation.

BI has noted that people should not be worried about the BI rate hike, because it will not lead to an increase in the lending rate.

"State-owned banks have committed themselves to not raise lending rates in the near future," the Chief of the BI Representative Office in Surakarta, Central Java, Bandoe Widiarto, remarked on Friday.

Therefore, the public fear that the BI rate hike would have a direct impact, with a rise in the lending rate being unfounded, he added.

"The step is also part of the banks` consolidated efforts amidst the sluggish market conditions. In principle, the key interest rate increases due to pressure on the rupiah`s exchange rate," he noted.

Bank Mandiri Area Head for Solo, Sriwedari Linda, revealed that she had not received a directive from the head office to adjust the lending rate, particularly for home loans, after BI decided to raise its key rate called 7-Days Reverse Repo by 25 basis points to 4.50 per cent on Thursday.

The BI Governor, Agus DW Martowardojo, explained that the decision was part of BI`s policy mix to maintain the stability of the macroeconomy and the financial system amidst uncertainty over the global market and declining global liquidity.  (Reported by Dewa Wiguna) (ed)