Throughout 2016, Bank Indonesia (BI) cut its benchmark interest rate, or BI Rate, four times. Since the beginning of 2016, the BI Rate has been lowered by 100 basis points (bps) to 6.5 percent. This is the lowest level since August 2013. This reduction in the benchmark interest rate aims to stimulate domestic economic growth, which has been sluggish.
Financial uncertainty, global economic slowdown, and the weakening of the Rupiah in 2015 caused banks to be cautious in disbursing credit. As a result, the Indonesian economy grew below 5 percent. The BI Rate cut is expected to result in a decrease in bank lending rates, making them more affordable and able to drive the real sector.
The BI Rate is one of BI's instruments for managing monetary policy, implemented since July 5, 2005. This benchmark interest rate reached its highest level of 12.75 percent in December 2005 and its lowest at 5.75 percent in February 2012.
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