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Indonesia to halve lending rates to small business amid slowdown

[SINGAPORE] Indonesia's state-owned banks will halve lending rates to small businesses as authorities seek to revive economic growth from a five-year low.

The lenders have agreed that rates will be lowered to 12 per cent from 22 per cent to 24 per cent, Vice President Jusuf Kalla said in a speech in Jakarta Wednesday. The government will subsidize interest payments received by state-owned banks and provide cheaper funding to them to lend to small firms, he said.

"We realise there's a mismatch in banking principles in the last few years," Mr Kalla said. "Small business loans have much higher interest rates compared with bigger loans. This is one thing that needs to be straightened up."

Southeast Asia's largest economy expanded 4.71 per cent in the first quarter, the least since 2009, while inflation accelerated for a third month in May, to 7.15 per cent.

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Price pressures limit the scope for Bank Indonesia to cut its policy rate of 7.5 per cent when it next meets on June 18. A surprise reduction in February helped weaken the rupiah, Asia's worst- performing currency this year.


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