Herman, Triyan Pangastuti, Jakarta – Bank Indonesia, or BI, the country's central bank, has cut its benchmark interest rate by 25 basis points to a record low of 3.5 percent and drop the down payment requirement for new vehicle loans and mortgages in the latest attempt to spur growth in Southeast Asia's largest economy.
This was the first cut this year, and the fifth in the past 12 months, as the central bank puts all its efforts to help the country pulls out from the Covid-19 recession.
"The decision is consistent with projected low inflation and maintained exchange rate stability as well as follow-up efforts to support national economic recovery momentum," Bank Indonesia Governor Perry Warjiyo said on Thursday.
Indonesia's annual inflation rate slowed down in January to 1.55 percent from 1.68 in December, well below the Bank Indonesia's targets of between 2 and 4 percent.
A weaker than expected growth in the fourth quarter last year also forced the central bank to revise its growth target 2021 to 4.3 to 5.3 percent, from previously 4.8 to 5.8 percent.
To spur household consumption, which accounts for more than half of the country's economy, Bank Indonesia also relaxed the down payment requirement for car and motorcycle loans and mortgages. Starting next month, one could buy a new motorcycle, car, or house without having to put down any downpayment.
Currently, people need to pay 10 to 15 percent in downpayment for homes and 5 to 20 percent for motor vehicles. The purchase of electric vehicles has already enjoyed a 0 down payment since last October.
Bank Indonesia was moving in concert with the government, which has decided to waive the cars' luxury sales tax, starting next month.
"Moving forward, Bank Indonesia will continue to direct all policy instruments towards supporting the national economic recovery while controlling inflation and maintaining rupiah exchange rate stability and financial system stability," Perry said.
Sunarso, the president director of state-controlled Bank Rakyat Indonesia (BRI), the country's largest lender by assets, welcomed the cut.
He said Indonesian lenders were now awash with liquidity, enabling them to meet demands once the customers' appetite for loans returned.
Sunarso, however, warned that a low-interest rate alone would not be enough to entice the customers to take loans. Purchasing power and the level of household consumtion influenced the loan demand the most, he said.
"We need to synchronize these two things under the integrated policy package that could move the real economy," Sunarso said.