Indonesian president for lower interest rates; CB Governor cautions

(Reuters) – Indonesia’s President Joko Widodo will seek to encourage reductions in bank lending rates and fuel prices as part of a package of policy reforms due to be announced next week, the chief economics minister said on Friday.

But the central bank governor cautioned that the weak rupiah, currently trading at 17-year lows versus the dollar, might make it risky to lower their interest charges.

"(Banks) also have to consider expectations of (rupiah) depreciation," Bank Indonesia Governor Agus Martowardojo told reporters.

"Inflation is better, below 7 percent. But for interest rates, inflation is not the only concern. The main concern is the external condition."

Widodo’s government rolled out two earlier sets of measures last month as part of a strategy to halt a slowdown and boost purchasing power in Southeast Asia’s biggest economy, after it grew 4.67 percent in the second quarter – the slowest pace since 2009.

The president called on banks to review their costs, such as staff, rent and electricity, and to cut their lending rates, which are currently among the highest in the region, Coordinating Minister for Economics Darmin Nasution told reporters.

"These are administrative matters, not monetary," the former central bank governor said.

Indonesia’s banking industry is among the most profitable in the world, but profit growth has slowed this year due to softer credit expansion and rising bad loans.

Commercial banks’ charged 12.6 percent interest on average for working-capital loans in August, according to Bank Indonesia. That compares with the central bank’s benchmark policy rate of 7.50 percent and the overnight money market rate of around 5.91 percent on Friday.

Lending rates in the country are market-driven. Three of the country’s four biggest banks are state-controlled.

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Widodo also requested state energy firm Pertamina to cut fuel prices if possible to help boost purchasing power.

Energy minister Sudirman Said told Reuters on Friday his ministry and Pertamina were studying the president’s request to lower fuel prices.

Other policies expected next week will speed up the time it takes to get business permits and start labour-intensive projects to counteract a loss of jobs in the manufacturing and mining sectors.

Widodo made a bold move at the beginning of the year by scrapping fuel subsidies, saving the government billions of dollars that the president promised to use for infrastructure.

But sluggish government spending and a lack of policy coordination have held up projects and dampened investor sentiment. (JAKARTA, Oct /2015)

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