|10 December, 2019

Indonesia c.bank to relax lending rules, sees room for more rate cuts

Benchmark rate has been cut 4 times by 100 bps in 2019

The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta, Indonesia September 22, 2016.

The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta, Indonesia September 22, 2016.

REUTERS/Iqro Rinaldi

JAKARTA - Indonesia's central bank is working to further relax lending rules and may further trim interest rates after this year's four rate cuts, as it continues to focus its policy on keeping economic growth momentum, a deputy governor said on Tuesday.

This year, Bank Indonesia (BI) has already cut its key benchmark rate by a total of 100 basis points, trimmed reserve requirement ratios and eased lending rules, among measures aimed at shielding Southeast Asia's largest economy from a global economic slowdown.

BI is looking to ease rules on macroprudential intermediation ratio (MIR) - or the central bank's preferred way to measure a bank's loan-to-deposit ratio - to "allow banks to lend without any disincentive", Deputy Governor Dody Budi Waluyo said.

"We are still hitting the gas pedal on macroprudential rules," he told an economic forum hosted by the stock exchange.

BI now guides commercial banks to manage an MIR level within a range of 84% to 94%. Those with an MIR level outside of the range are required to park bigger reserves at BI.

Such a penalty may be relaxed to give banks room to extend more loans, but BI will make sure banks are prudent with their lending by monitoring their non-performing loan ratios and other indicators, Waluyo told reporters after addressing the forum.

On future movements of BI's benchmark, Waluyo said: "There is room for further lowering of interest rates, but we must be careful."

He added that any such decision will be data dependent and be based on assessments of future risks, which includes what happens to the U.S.-China trade war and U.S. interest rates.

BI will also continue to provide the banking system with more liquidity, Waluyo said.

There has been criticism that BI's easing may make banks less prudent in managing their assets, including from an official at the Financial Services Authority (OJK), who warned that excess liquidity at a time of weak demand could lead to more bad loans.

David Sumual, chief economist of Indonesia's biggest bank by market value, BCA, said BI's measures are unlikely to stimulate demand.

"Monetary stimulus is not enough if not paired with fiscal and structural policies by the government," he said.

BI expects Indonesia's GDP to grow 5.05% this year and 5.3% next year, with loan growth seen at around 8% this year and accelerating to 10%-12% next year.

(Writing by Gayatri Suroyo; Editing by Jacqueline Wong) ((gayatri.suroyo@thomsonreuters.com; +622129927609; Reuters Messaging: gayatri.suroyo.thomsonreuters.com@reuters.net))