IDEAL BI RATE IS SEVEN PCT : GAIKINDO

Jakarta, Feb 6 (ANTARA) - The Indonesian Motor Vehicle Industries Association (GAIKINDO) said ideally the benchmark rate of Bank Indonesia (BI) should be set at seven percent.

"The indication that BI is willing to cut its rate means that the government is making efforts to improve the economy. It is important that these efforts continue," Gaikindo chairman Bambang Trisulo said here on Thursday.
But the BI's effort to cut its rate for the third time was a good signal which was expected to stimulate the national economy.
With macro-economic conditions improving , the ideal level of the BI benchmark rate, locally known as BI Rate, is seven percent, he said. A 7-percent BI Rate is expected to help fuel the people's economy at the grass-root level.
For the automotive sector, the cut in BI Rate by 50 basis points from 8.75 percent to 8.25 would be helpful if banks also cut the interest rates of their credits, he said.
The problem, Trisulo said, is that not all banks are willing to significantly cut their interest rates. They will continue to tighten credits. Small banks, however usually follow suit and aggressively cut their interest rates significantly.
"Banks' interest rates have indeed begun to go down, yet they were cut only after BI lowered its rate for the second time. The impact of the recent BI Rate cut would be felt only after one or two more months," Trisulo said.
However, he said, the BI Rate cut to 8.25 percent would not be helpful if banks do not follow suit.
Bank Indonesia (BI/the central bank) lowered its benchmark rate by 50 basis points from 8.75 percent to 8.25 percent on Wednesday in an effort to boost a better growth of national economy.
Last month, BI cut its benchmark rate by 50 basis points from 9.25 percent to 8.75 percent. At that moment, BI saw a good inflation development.