JAKARTA. Vice President Jusuf Kalla has welcomed Bank Indonesia's (BI's) step to use the 7-Day Reverse Repo (RR) Rate as its new benchmark reference rate to replace its previous 12-month key reference rate (BI Rate).
"The government, BI, and the Financial Service Authority had all agreed to use it some six months ago. The 7-Day RR Rate will be used to replace the BI Rate system. It is lower because it is only for seven days," Kalla stated at the Vice Presidential Office on Friday.
Kalla noted that with the use of the 7-day RR benchmark reference rate, the banking rate could go down to some seven percent by June 2017.
The vice president remarked that the policy is one of the ways to help small- and medium-scale businesses, which had so far become the victims of high interest rates.
BI Senior Deputy Governor Mirza Adiyaswara pointed out that the 7-Day RR Rate, which is the symmetrical rate formula for deposit and BI reserve funds for banks, will effectively cut bank funding costs, which will in the end lower the interest rate of banking credits.
Moreover, banks will have ample opportunities to enjoy other liquidity facilities from the BI funding facilities as the lending facility (LF) rate will be kept at a maximal rate of 75 basis points above the 7-Day RR Rate.
If the deposit interest rate could be lowered, banks will have ample room to also lower the interest rates of their credits, as the burden they have to bear due to their credits will decline.
However, the decline in the deposit interest rate will depend on the banks' trust on depositors that they will not withdraw their money after the banks lower the deposit interest rate, he stated.
"Hence, the lowering of the lending rate will also depend on the behaviors of depositors and other factors. For this, banks should provide flexible pricing to them," said Mirza.
