Bank Mandiri Value Of Benchmark Interest Rate Reduction Has Fixed, US Policy Is The Cause

Illustration. (Photo: Doc. Antara)

JAKARTA - PT Bank Mandiri Tbk assesses that the space for lowering the benchmark interest rate by Bank Indonesia is getting narrower following increasingly dynamic global economic conditions after one year of the pandemic. In a press release, the state-owned bank considers the situation in the superpower country the United States (US) to be the main trigger.

"This is based on the US Central Bank's decision to announce to start selling portfolios from the Secondary Market Corporate Credit Facility (SMCCF)", said Bank Mandiri's Office of Chief Economist on Tuesday, June 8.

Furthermore, the COVID-19 pandemic which began in March 2020 has had a significant negative impact on financial markets and economic activity in general in the world, including the US.

"The reduction in corporate portfolio holdings signals that the Fed (US central bank) has seen the US economic recovery getting better", he said.

However, the reduction in the corporate portfolio will not have such a large impact on liquidity because the amount is relatively very small.

"At the April 2021 FOMC (Federal Open Market Committee), the Fed still maintains a dovish monetary policy direction", he said.

Bank Mandiri explained that at the meeting the Fed decided to maintain its policy interest rate or the Fed Funds Rate (FFR) in the range of 0.00 - 0.25 percent.

Then, the monetary authority also took steps to continue to increase its UST holdings of at least USD 80 billion per month and agency mortgage-backed securities to at least USD 40 billion per month.

“On this basis, we see the risk that a faster normalization of US monetary policy will narrow the room for further cuts to the benchmark interest rate. In addition, inflation and the current account deficit are predicted to increase in line with the economic recovery, so the BI-7DRRR is projected to remain at 3.50 percent until the end of 2021", concluded Bank Mandiri.