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25 January 2010

Indonesia's central bank reaffirms lending boost

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Indonesia's central bank reaffirmed its pledge to boost lending by domestic banks at a widely watched dinner meeting of central bankers and commercial lenders on Friday but failed to provide details of possible new measures, Reuters reported.

A senior official at Bank Indonesia told reporters at the meeting, postponed from last week, that it would likely adopt fresh plans within the next one to two months to keep money flowing into Southeast Asia's largest economy.

"Bank Indonesia plans to put in place a scheme under which banks' reserve requirements will be tied with incentives and disincentives" so that banks can increase lending without breaching regulations, director Halim Alamsyah said.

Analysts and investors have been awaiting details of the fresh measures because they could influence not only the heavily domestic demand-driven economy, but also banks' balance sheets in a country where many of the biggest players are partly owned by the government.

Indonesia's President and the financial authorities have criticised local banks for failing to lower lending rates in line with the central bank's cuts in policy rate.

Bank Indonesia started cutting in late 2008 amid a global wave of concerted monetary easing to fight an economic downturn. The central bank has lowered its policy rate by a total of three percentage points since December 2008 to a record low of 6.5 percent, persuaded lenders to agree to cap the maximum deposit rates in August, and has said more would come.

President Susilo Bambang Yudhoyono has set a target for economic growth this year of 5.5 percent, up from 4.3 percent last year, but wants to boost growth as much as possible to lift poverty and win support for his reforms.

The reform drive of Yudhoyono, who won a re-election last year thanks to some progress in tackling corruption, already faces troubles because of a probe into a controversial government bailout of a small lender in late 2008.

Ratings agency Moody's Investors Service said this week the probe could slow reform, while a Reuters poll showed reformer Finance Minister Sri Mulyani Indrawati, who made the decision to bail out the bank, could end up losing her job because of the probe.

 

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