Bank Indonesia Opens Votes On 0 Percent Interest Rates: In Accordance With Sharia Principles

Deputy Governor of Bank Indonesia Dody Budi Waluyo. (Photo: Capture IAEI screen)

JAKARTA - Deputy Governor of Bank Indonesia (BI) Dody Budi Waluyo said that the 0 percent or even negative bank interest rate is actually in line with the principles promoted by Islamic financial services institutions.

The reason is, in the financial institution scheme that carries the Islamic concept, there is no mention of a fund depositing instrument that produces returns.

"If banks give 0 percent or negative interest, the concept that they want to raise is that the funds are forced to move to the productive sector," he said in a webinar initiated by the Indonesian Islamic Economists Association (IAEI), Tuesday, April 6.

Dody added that this principle could actually solve the current problem, namely the abundance of liquidity in the banking sector as a result of the owner of the funds preferring to park their money in the bank rather than use it for spending or business expansion.

"This is what the government is currently pushing to make the sharia economy, especially in Islamic banking, a new source of growth," he said.

However, he does not want to speculate whether Indonesia will apply an interest rate of 0 percent or not to avoid polemic in the community.

Meanwhile, one thing he confirmed was that the monetary authority would remain accommodating to the latest economic developments as evidenced by the determination of the interest rate at the lowest level.

As previously reported, the last BI Board of Governors Meeting held on March 18 decided to maintain the BI 7-Day Reverse Repo Rate (BI7DRR) benchmark interest rate at 3.50 percent. This figure is the lowest level in the history of setting interest rates in this republic.

BI's decision to keep interest rates steady is intended to encourage liquidity deposited in banks to be channeled into the productive sector.

In addition, it is believed that the flow of funds into business activities can increase the rate of inflation as an indicator of trade aggressiveness and economic turnover.