It's been a recent issue in Indonesian banking industry regarding Bank Indonesia policy to lowering the BI rate by 250 BP, from 9.25% in December 2008 to 6.75% in July 2009. This declining in BI rate was not in line with commercial bank policy, which has maintained high interest rate for loan.

It's crucial to have high interest rate for loan in particular country, when the economic growth is mainly driven by the consumption. Indonesia, with more than 200 millions citizens is relying very much on the consumption to keep the economy growing, especially when the rest of the nations in the world are suffering from global economic crisis. Indonesia was one of the most surviving countires, in terms of the impac of sub prime mortgage crisis in US. Since having positive economic growth in 2008, besides China and India, Indonesia are now enjoying 4.4% economic growth in 1st Quarter 2009. As the elected president, Susilo Yudhoyono targeted 6% economic growth in 2009.

The main issue now is how to keep the consumption growing in order to maintain positive economic growth in 2009. The most important point is keeping retail sector on the move, so that Buying Power remains strong. The retail sector itself, need a liquidity access form banks to keep the business going. The central bank has responded with lowering BI rate by 250 BP to 6.75% in July 2009.

In contrast with the central bank's policy, Indonesia commercial banks tend to keep the credit interest about 14.58%.

The purpose this report is to analyze why commercial banks did not responded well the decline in BI rate. In this report, author chooses PT Bank Rabobank International Indonesia the base case in doing the analysis. Based on the internship experience in PT Bank Rabobank International Indonesia, author is aiming to find the real matter regarding to the Rabobank Policy in terms of responding the fluctuation in BI rate and the decisions on the Bank's interest rate for loan. After completing this report, author also will bring out some recommendations about how banking sectors could positions themselves in maximizing their contribution to prevent further impacts of global economic crisis.



Research Location : PT Rabobank International Indonesia



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