Despite Being Surprised By The Market, The Decline In The BI Rate Is In Line With The Encouraging Of Indonesia's Economic Growth

JAKARTA - LPPI Senior Economist and Associate Faculty Ryan Kiryanto considered that the decision of the Board of Governors (RDG) of Bank Indonesia (BI) to return to lowering the BI Rate by 25 basis points (bps) to 4.75 percent was a surprising and meaningful step.

"The decision of the BI RDG which is beyond expectations by economists to reduce the BI Rate by 25 bps from 5 percent to 4.75 percent is truly full of messages that the decision is indeed very pro growth, while maintaining stability (rupiah and inflation)," he said in his statement, Thursday, September 18.

According to him, this step was beyond the expectations of economists because BI had previously lowered the benchmark interest rate by 25 bps last month, from 5.25 percent to 5 percent and the decline in interest rates in two consecutive months showed BI's aggressive attitude that sloping the BI Rate would certainly provide fresh air to many parties, especially banks and players in the real sector.

"Moreover, the sweet herbal medicine from the BI RDG decision is in line with the sweet herbal medicine from the fiscal policy after the decision of the Minister of Finance, Purbaya Yudhi Sadive, to inject liquidity into Himbara banks (including BSI) with a total of Rp200 trillion taken or sourced from the existing government budget in BI to encourage the intermediation function of banks," he explained.

Ryan said that the government is also preparing a follow-up economic stimulus package, so that the synergy between the monetary authority (Bank Indonesia) and the fiscal authority (Ministry of Finance) is considered very solid and running in harmony.

He explained that this policy is expected for banks to respond immediately by lowering deposit interest rates and credit, so that credit expansion can be carried out more quickly.

"Banks should also prepare pipelines where credit distribution will be directed, both in terms of the economic sector or business fields, including national strategic projects, as well as in terms of the customer segment (whole/corporate, commercial or MSME)," he said.

On the other hand, Ryan said that this more accommodative reduction in interest rates is expected to encourage business actors to immediately apply for financing, especially to Himbara banks because credit interest rates are more accommodative.

Ryan also emphasized the importance of supervision from financial authorities to ensure that credit distribution runs optimally, including to the MSME sector. Moreover, OJK has issued the latest regulations in the form of POJK which regulates financing for this segment.

"Now, it's just a matter of how the government through its devices is able to create and maintain the conduciveness of the business climate and investment to encourage entrepreneurs to expand and investors to invest. Thus, the transmission of the monetary and fiscal policy mix can be effective down to the real sector," he explained.