World Economy

Bank Indonesia Projects Higher Loan Growth

Bank Indonesia Projects Higher Loan GrowthBank Indonesia Projects Higher Loan Growth

Bank Indonesia projects that loose monetary and macro-prudential policy will stimulate credit growth in June, leading to an 8.9% year-on-year growth figure, a slight increase from the 8.3% recorded in the previous month.

BI’s monetary policy executive director Juda Agung said the central bank had decided to gradually cut its benchmark interest rate by 100 basis points since the beginning of 2016. As of June 21, the deposit rate fell by 80 bps while the lending rate fell by 40 bps, World Finance reported.

“The decline in the lending rate is 45%, but I think it will be further adjusted in the following months. The BI rate cut immediately affects the deposit rate, followed by the lending rate. We expect bank loans to accelerate by 8.9% in June,” he said in Jakarta.

He went on to say the full effect to lending rates would be seen at the end of the year, because banks still had to consider the cost of funds, overhead costs and profit margins in calculating a feasible lending rate cut.

However, the slow transmission in the lending rate cut has led to limited credit growth amid the moderate gains that banks enjoyed in May 2016. During that month, bank loans grew 8.3%, an insignificant increase compared to the growth recorded in April, at 8%.

On the other hand, bank deposits climbed 6.5%, up from 6.2% a month earlier.

 Economy Growing

The Asian Development Bank has maintained its growth projection for the Indonesian economy at 5.2% this year on the back of brighter consumption.

Private consumption is expected to pick up slightly due to moderate inflation, a relatively stable rupiah and an energy price cut in April. The announced increase in the personal income tax threshold and a 14-month salary for civil servants will further boost household spending, according to a statement circulated last Monday by the Manila-based regional development bank.

However, several domestic and global downside risks remain. The ADB expects that revenue shortfall may be higher than projected, a reality that would constrain the government’s infrastructure development plans.

Government tax revenues in the first six months of the year totaled Rp 518.4 trillion ($39.6 billion), lower than the Rp 536.1 trillion recorded in the same period last year. Revenue fell Rp17.7 trillion or 3.3% year-on-year in the first half of the year.

The ADB also weighed in on the continued weakness in credit growth, claiming that such weakness could limit recovery in private investments. The main external risks have been listed as weaker than expected global growth and higher global financial market volatility, the statement read.

Indonesia’s economy grew at a lower than expected rate, sitting at 4.92% in the first quarter of this year. The government has revised its growth target from 5.3% to 5.2% in the revised state budget approved in late June by the House of Representatives.