Indonesia’s central bank said it will use the seven-day reverse repo rate as its benchmark policy instrument to help spur lending and support growth in Southeast Asia’s biggest economy.
The new benchmark–which is the interest the central bank pays to borrow from commercial lenders, currently at 5.5%–will replace the 12-month reference rate of 6.75%, Bank Indonesia said, Bloomberg reported.
“I want to stress that our monetary stance has not changed,” Bank Indonesia Governor Agus Martowardojo said by video conference from Washington, where he was attending meetings of the International Monetary Fund. “This will enable Indonesia to rise to a new level and become a country that has implemented monetary policy along best practice lines.” Reducing the reference rate by 75 basis points this year hasn’t been effective in lowering lending rates in the economy to the same degree, frustrating policymakers as they seek to spur an economy hit by falling exports. The new benchmark rate may help the central bank influence money-market rates more directly.
Bank Indonesia will also reduce the corridor around the new benchmark rate to 150 basis points from 250 basis points. That will take the lending facility rate, which is the interest it charges borrowers, to 6.25% when the new policy comes into effect on August 19, deputy governor Perry Warjiyo said. The rate is currently at 7.25%.
The overnight deposit rate, known as the Fasbi, stays at 4.75%, he said.
Touching on the same subject, the National Economic and Industry Committee, or KEIN, said Friday that industrialization should be the locomotive pulling Indonesia’s economic growth.
KEIN chairman Sutrisno Bachir said Indonesia could no longer rely on raw commodity exports to boost the country’s economic growth amid a sluggish global economy.
“We are in a difficult situation. We should tighten our belts and be smart in dealing with this situation,” he said at the State Palace.
Sutrisno said the newly established committee was set to compose a reindustrialization roadmap as part of its effort to analyze the government’s plan to boost domestic manufacturing.
“KEIN will actively provide strategic input in the fields of the economy and industry, not only in the form of papers, but also directly to all communities and regions,” he said.
