Is the Era of Low Credit Interest Rates Over?

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23/05/2018 11:41 WIB

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The possibility of three more US Federal Reserve interest rate hikes before the end of the year could trigger an increase in Bank Indonesia's benchmark interest rate. This, in turn, would lead to hig

Bank Lending Interest Rates and BI Rate (2006-May 2018)

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Bank Lending Interest Rates and BI Rate (2006-May 2018)

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At its Board of Governors (RDG) meeting held on May 16-17, 2018, Bank Indonesia decided to raise its benchmark interest rate, the BI 7-day Reserve Repo Rate, by 25 basis points (bps) to 4.5%. This increase in the benchmark interest rate is usually quickly followed by banks raising their lending rates.

As shown in the graph below, lending rates have shown a downward trend in line with the decline in BI's benchmark interest rate. The consumer lending rate fell to 12.48% in March 2018 from 17.08% in January 2016. Similarly, the working capital lending rate decreased to 10.63% from 16.32%, and the investment lending rate fell to 10.38% from 15.81%.

The weakening of the Rupiah due to global uncertainty and the outflow of foreign funds from the domestic financial market prompted the central bank to raise its benchmark interest rate for the first time since October 2014. The possibility of further interest rate hikes by the US Federal Reserve (The Fed) – up to three more times by the end of the year – could trigger further increases in the BI benchmark interest rate. This, in turn, would lead to higher lending rates, bringing an end to the era of low interest rates.

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."

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Is the Era of Low Credit Interest Rates Over?

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