Increase in BI Rate Helps Stabilize Banking Industry

Jakarta (Antara) - Fitch Ratings Indonesia hailed the decision of Bank Indonesia to raise its benchmark interest rate (BI rate) saying the increase would help stabilize the country's banking industry. The Central bank has raised the BI rate from 6 percent to 6.5 percent to forestall expected surge in inflation following the recent increase in the price of subsidized oil fuels, Iwan Wisaksana, the director of the Indonesian unit of International Fitch Rating said here on Monday. Iwan said the increase in BI rate will diminish possible default amid growing Indonesian banking credits over the past several years. "In addition, the quality of bank credits would improve as a result of the increase in the BI rate," Iwan added. He said Indonesia is one of five countries in Asia having Macro Prudential Indicator with high risk of economic systemic stress. He also described as positive a series of steps of prudential banking principles taken by the central bank to forestall macro economic turbulence particularly from the consumer financing sector. He cited the central bank's regulation last year raising the advance payments for motor vehicles and houses purchased with credits as one of positive steps . He hoped that Indonesia's banking industry would be healthier with the increase in the BI rate although it could mean slowdown in credit expansion and a cut in profitability of domestic banks. Fitch Indonesia also suggested the government adopt a series of measures to curb inflation and reduce current account deficit. (*)