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Indonesia should avoid further rate cuts, says country’s biggest bank

Bloomberg Published on Tue, Oct 03, 2017 / 7:52 AM GMT+8

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(Oct 3): Indonesia’s central bank should avoid cutting interest rates further because borrowing costs are at an appropriate level even as loan growth remains subdued, according to the chief of the country’s biggest lender.

The current benchmark rate of 4.25% is “quite optimal,” PT Bank Mandiri President Director Kartika Wirjoatmodjo said in an interview on Sept 28. “Overall liquidity is much better” and “is not an issue anymore,” he said. Further rate cuts will do little to stimulate lending, which is unlikely to accelerate much beyond current levels until Indonesian lenders finish reducing the number of non-performing loans on their books, Wirjoatmodjo added.

Bank Indonesia lowered its benchmark rate for a second straight month in September as low inflation gave it room to boost Southeast Asia’s biggest economy. Yet credit expansion remains slow even after eight rate cuts totalling 2 percentage points since the beginning of last year, as lenders including Bank Mandiri grapple with lingering bad debts.