Bank Indonesia policy to boost weak demand hinges on consumer, bank appetites: governor

Bank Indonesia policy to boost weak demand hinges on consumer, bank appetites: governor

February 21, 2021 0 By administrator

JAKARTA (The Jakarta Post/ANN): The latest move by Bank Indonesia (BI) to relax down-payment regulations to boost property and automotive sales will hinge on the appetites of consumers and banks, with the former facing much-reduced purchasing power as a result of the coronavirus pandemic.

BI Governor Perry Warjiyo announced on Thursday (Feb 18) that the central bank would relax the regulations to allow zero per cent down payments for both mortgages and automotive loans to boost demand in both sectors, which have been battered by the Covid-19-induced downturn.

The central bank has relaxed the loan-to-value (LTV) and financing-to-value (FTV) ratios, the ratios between the loan and the asset value, to 100 per cent, from the previous 85 to 95 percent depending on property type.

The LTV is an often-used ratio in mortgage lending to determine the size of down payment required and whether a lender will extend credit to a borrower.

These relaxation policies are set to take effect starting from March to December this year. However, Bahana Sekuritas economist Satria Sambijantoro said on Friday the central bank’s policy to allow lower down payments for mortgages might not be in line with consumer needs.

Consumers generally aim to pay a larger down payment for mortgages to reduce their outstanding loans in the future, for fear that interest rates could rise, he said.

“I doubt that relaxing the down payment rules can stimulate demand among buyers since they have concerns about large instalments and higher interest rates,” Satria told The Jakarta Post in a phone interview, adding that consumers might have similar concerns regarding vehicle loans, which are also weighed down by a lack of appetite to buy vehicles because of reduced mobility during the pandemic.

Indonesia is aiming for economic recovery this year, after entering an economic recession last year for the first time since 1998, with the GDP dropping by 2.07 per cent in 2020 as most economic components fell.

Household spending fell 2.63 per cent last year, which was also contributed by a fall in automotive sales.

Sales of passenger cars and motorcycles were down by 50.49 per cent and 43.54 per cent, respectively, in 2020, Statistics Indonesia (BPS) data show.

BI’s monetary policy to allow zero-per cent down payments for automotive loans follows the government’s move to cut the luxury goods sales tax on sedans and two-wheel drive cars with engines of 1,500 cc or below.

The luxury sales tax cut will also apply for a three-month period starting from March 1.

The policy also came as BI cut its benchmark interest rate by 25 basis points on Thursday, bringing it down to 3.5 per cent, the lowest level since the rate was introduced in 2016, as the central bank pledged to support the country’s economic recovery.

BI has also lowered its economic growth projection for the country to between 4.3 and 5.3 per…

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