GOVT URGED TO PRESSURE BANKS TO LOVER LENDING RATES

Jakarta, May 5 (ANTARA) - The government was urged on Tuesday to force banks to lower their lending rates after Bank Indonesia (BI/the central bank) had cut its benchmark rate by 0.25 basis points to 7.25 percent.

"Banks should not only enjoy the BI rate cut while refusing to lower their interest rates on credits," secretary general of the Islamic Economists Association (IAEI), Agustianto, said here on Tuesday.

He said his organization supported the BI's step in lowering its benchmark rate because it would help to move the real sector where many small people were doing business.

If need be, he said, BI should continue to lower its rate to six or five percent although this was unlikely to be realized.

He said the BI's step in cutting its key interest rate had not yet been effective as it was not followed by banks which were still imposing high interest rates.

If banks are ready to lower their lending rates, the real sector could be developed. "The government is expected to force banks to do so," he said.

However, monetary analyst John Tafbu Ritonga, who is also dean of North Sumatra University's School of Economics, said that the government could not force banks because banks had to cover the costs they had incurred previously.

Although the BI Rate had dropped, third party funds deposited at banks now were collected when the BI benchmark rate was still high.

Based on this fact, banks should regain the costs they had incurred to pay in interest on their clients' deposits.

But a call by the government on banks to lower their interest rates could be fulfilled if there was an advantageous solution such as the readiness of the government to bear the risks of micro-business credits and part of the interest rates of certain business credits.

"If there is such a solution the government can urge banks to lower their interest rates," he said.

The board of governors of Bank Indonesia (BI/the central bank) decided on Tuesday to lower its benchmark rate (BI Rate) by 25 basis points to 7.25 percent.***2***