Mandiri may increase rates on central bank's policies

Mulls increasing lending rates to 15 basis points after August inflation figures reached a 16-month high.

Indonesia’s largest bank by assets, Bank Mandiri, says it may increase its lending rates after placing more cash at the central bank, as demanded by the new reserve requirements, which will increase the costs of funds.

With excess liquidity in the banking system that could lead to higher inflation, Bank Indonesia announced last week that banks would have to keep more cash in reserve. The announcement came after August inflation figures reached a 16-month high.

As of Nov. 1, BI said, banks would need to keep 8 percent of their total deposits as a primary cash reserve requirement, up from 5 percent previously.

“One side effect of the new policy may be that banks increase lending rates, because not all banks are ready [to keep more cash at the central bank].

“Based on my calculations, [lending rates] could increase by 10 to 15 basis points,” Bank Mandiri risk management director Sentot A. Sentausa said.

View the full story in the Jakarta Post.