SBI and Business Property
BANK Indonesia raised the interest rate of Bank Indonesia Certificates (SBI) by 25 basis points to 4.5%. The interest rate (rate) is one of the benchmarks that trigger the economic growth of a country.
Last night Bank Indonesia (BI) finally decided to raise the BI-7 days Reverse Repo Rate benchmark rate to a level of 4.5% with a fixed deposit rate of 3.75% and a fixed lending facility of 5.25%.
This was decided in BI's Board of Governors Meeting (RDG) of BI from 16-17 May 2018 and effective on April 18, 2018. BI Governor Agus Martowardojo said the 25 basis points (bps) rate hike is consistent with efforts to maintain macroeconomic stability and financial system and also support the development of the domestic economy.
Policies made by Bank Indonesia to raise interest rates or lower interest rates could impact on various sectors of economic activity. These economic activities include the flow of financial / banking flows that include savings, investments, inflation that is strongly influenced by the movement of the rupiah exchange rate.
A country with a strong exchange rate (having a large number of transactions) has a strong influence on the fundamentals of the world economy, so that the central bank policy of developed countries towards these rates will usually be responded by market participants and investors. They will take advantage of these moments to gain maximum profit.
Well, the policy to raise the BI Rate can have a positive or negative impact because interest rates are closely related to creditors (banks) and debtors (borrowers). In principle, the interest rate is the price on the use of money or as a lease for the use of money within a certain period of time.
From the domestic industry side, an increase in interest rates made by the Central Bank over time will have an impact on the amount of production. The positive side is that labor is increasing, production output increases, consequently export capacity increases so that the number of unemployment also decreases due to the amount of labor absorbed in it.
Long-term securities are foreign exchange entering the country will also be greater so that will further strengthen the exchange rate of domestic currency.
This also applies vice versa, if only the interest rate decreases then usually industry players will respond by decreasing domestic production as a result of risk management policy to minimize potential loss.
In the property sector, for example, the policy of raising the BI Rate if not done carefully will make the industry shaken. Through its association (REI), the industry asks banks not to care about themselves, because if the SBI rises then the interest rate of the bank increases.
However, when SBIs go down the banks do not want to go down, it is certainly not good for the growth of the real sector. The most risky, if at the current condition of interest rates raised then there will be a lot of bad credit housing. The developers are feared will fall.
Property industry in the country is starting to worry about the volatility of the rupiah against the US dollar. If the weakening of the rupiah against the US dollar lasts a long time, it is feared that many property developers are also collapsed.
An increasingly high exchange rate has a serious impact on the property industry, particularly the high-end property segment facing serious problems.
With rising interest rates, REI is also concerned that the real sector is not moving because of the large amount of funds that settles in financial instruments such as bonds, forex, deposits and savings.
Currently, there is a lot of money saved in the bank and does not enter the real sector. Industry worries people will not want to buy property, because they prefer to put their money into savings and deposits. Financial Services Authority data of new funds coming into financial instruments reached Rp1,400 trillion.
Therefore, the government, BI, and banks are expected to continue to strive to create a good climate for the growth of the real sector including the property sector in the country which is now quite depressed.