APSN Banner

BI's rate hike sinks IDX, investors worry about credit slowdown

Jakarta Globe - April 25, 2024

Vinnilya, Jakarta – The Indonesia Stock Exchange (IDX) saw a drop in the Composite Stock Price Index at the opening of Thursday's trading session, falling to 7,176 and briefly touching a low of 7,132.

This drop followed Bank Indonesia's (BI) decision to raise the benchmark interest rate (BI rate) to 6.25 percent on Wednesday. The increase was met with negative responses from market participants due to several concerns.

According to Reza Priyambada, an Investment Consultant at Reliance Sekuritas, the hike in the BI rate raised concerns about a potential slowdown in bank credit disbursement. Businesses are also reevaluating decisions to take loans with high interest rates.

Furthermore, uncertainty looms regarding the direction of the Federal Reserve's (The Fed) Fed Funds Rate (FFR) cuts this year.

"There is no firm statement from The Fed indicating that the FFR will decrease in a certain month. This has led the market to reconsider whether domestic interest rates will rise while the global FFR level remains unclear," Reza Priyambada told Investor Daily TV (IDTV) on Thursday.

He said that if the credit interest rates for retail or small enterprises shift to around 9-10 percent, and for corporates, it may vary between 12% or maybe 14-15%, there is still a significant spread, even though the BI rate is 6.25 percent.

"We hope there will be no adjustment in credit interest rates to cushion the impact," he said.

Reza added that the increase in credit interest rates could also pose challenges for creditors due to increased costs. Therefore, such adjustments should not occur, especially considering that the Indonesian economy is still in the recovery phase post-Covid-19 pandemic.

"We shouldn't face such conditions at a time like this," he emphasized.

According to senior economist and Associate Faculty at the Indonesian Banking Development Institute, Ryan Kiryanto, the BI-rate increase can still be tolerated by market participants and businesses.

"Although the 25 bps increase is considered non-aggressive, banks and financing institutions need to recalculate their operations," said Ryan.

Ryan emphasized the importance of banks maintaining a balance between the interests of creditors and debtors to avoid disrupting economic activities.

"Stress tests need to be conducted to test the resilience of banks against increasing risks, both in global geopolitics and current monetary policies," he added.

Meanwhile, Bank Danamon economist, Irman Faiz, said that BI's move showed its readiness to face pressure on the rupiah.

"BI seems to be preparing to mitigate pressure on the rupiah by raising the money market interest rate and responding to the increase in yields," said Irman.

Irman also predicted that BI would remain proactive in implementing interest rate hikes if pressure on the rupiah continues.

"We predict that BI will not lower the benchmark interest rate in 2024, considering the high benchmark interest rate policy applied by the Fed," said Irman.

Source: https://jakartaglobe.id/business/bis-rate-hike-sinks-idx-investors-worry-about-credit-slowdow