The performance of the Indonesian economy continues to show a direction of recovery and is already on the right track. In 2021, the government of Indonesia will continue to focus on carrying out the National Economic Recovery program to support both households and the business sector, especially Medium, Small and Micro Enterprises. To encourage consumption and increase financing for the business world, Bank Indonesia as the Central Bank -BI harmonized monetary policy, including lowering the benchmark interest rate.
The meeting of the Board of Governors of BI on 17-18 February 2021 decided to lower the BI 7-day Reverse Repo Rate by 25 basis points (bps) to 3.5 percent. The Central Bank also lowered the interest rate for placement of rupiah funds by 2.75 percent and the rate for provision of rupiah funds by 4.25 percent. The decline in interest rates this time continues the trend that has been going on since early 2020, when BI cut its benchmark interest rate by 150 bps.
This decision is consistent with the forecast for low inflation and maintained stability of the rupiah exchange rate. This is also an effort to boost the momentum of national economic recovery.
The 25-bps cut back in the BI benchmark interest rate was also driven by the slow transmission of the BI benchmark interest rate to banking interest. Throughout 2020, bank lending rates only fell 83 bps to 9.7 percent, although in the same period, the BI benchmark interest rate had fallen by 125 basis points to a level of 3.75 percent.
Apart from easing interest rates, BI also took other steps as a follow-up to the synergy of the Financial System Stability Committee's policies. From March 1 to December 31, 2021, Bank Indonesia will relax the provision for down payment for credit or motor vehicle financing to a minimum of 0 percent for all types of new motorized vehicles. During the same period, BI will also relax the ratio of loans or financing to value for credit or property financing to a maximum of 100 percent. This policy applies to all types of property, from landed houses, flats, to shop houses or home offices.
All of these stimuli are expected to be able to encourage Indonesian economic recovery which has slowed due to the Covid-19 pandemic.