Based on data taken from Bank Indonesia's website interest rates on retail loans (from state-owned lenders) ranges between 11.50 and 12.25 percent, while mortgage (Kredit Pemilikan Rumah, or KPR) and non-mortgage loans bear an interest rate between 8.60 and 12.5 percent. Corporate lending rates range between 10.25 and 11.50 percent. Lastly, credit for the country's micro businesses is in the range of 18.75 and 19.25 percent.

On Thursday (18/02) Bank Indonesia contributed by loosening its monetary policy. The central bank used two vital instruments: the benchmark interest rate (BI rate) and the primary reserve requirement. The BI rate was cut by 25 basis points to 7.00 percent, while the rupiah denominated primary reserve requirement was cut by 100 basis points to 6.5 percent (effective per 16 March 2016). Meanwhile, Bank Indonesia also cut the deposit facility rate and the lending facility rate by 25 basis points, to 5 percent and 7.5 percent, respectively.

Bank Indonesia Governor Agus Martowardojo commented on this looser monetary policy saying it will boost banks' liquidity while credit growth could reach a growth pace of 14 percent (y/y) in 2016. Since September 2013 Indonesia's central bank had kept the BI rate at a minimum of 7.25 percent to combat high inflation (due to subsidized fuel price adjustments), curtail the current account deficit, and limit capital outflows amid an uncertain global environment (particularly caused by looming monetary tightening in the USA). However, this context has changed now. Martowardojo said the central bank sees easing global uncertainty, while both inflation and the current account deficit are stable.

Perry Warjiyo, Deputy Governor at Bank Indonesia, said the lower primary reserve requirement will add IDR 34 trillion (approx. USD $2.5 billion) of liquidity into Indonesia's financial system.

Benchmark Interest Rates in Asia:

Country Interest Rate Policy Meeting
Indonesia      7.00% February 2016
India      6.75% February 2016
Vietnam      6.50% January 2016
China      4.35% January 2016
Philippines      4.00% February 2016
Malaysia      3.25% January 2016
Thailand      1.50% February 2016
South Korea      1.50% February 2016
Singapore      0.19% January 2016
Japan     -0.10% January 2016

Muliaman D. Hadad, Chairman of the Financial Services Authority (OJK), said his institution will soon issue new regulations that aim to reduce the cost of funds for commercial banks in Indonesia. Lower costs will make it easier for these banks to cut lending rates. Although it may erode profits at first sight, it will enlarge the banks' customer base. Hadad stated that banks' net interest margin (the difference between interest income generated by banks and the amount of interest paid out to the lenders) could be fixed at 4 percent (as it is in Thailand).