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To boost economic growth, Bank Indonesia plans to issue regulations requiring banks to lower lending rates, a senior central bank official said on Friday.

Senior deputy governor Darmin Nasution said the central bank would analyze the cost structures of commercial banks before drafting the new regulation on lending rates, to be issued in the first half of 2010.

“In slow economic conditions, demand for loans is not high, so the lending rate should be lower. If it is not coming down, something is not right,” he said.

Darmin had said on Thursday that he expected the measures, to be introduced gradually, to eventually prompt commercial banks to reduce the spread between lending and deposit rates. He did not elaborate.

Banks currently charge lending rates at about 14 percent for working capital loans and investment and about 16 percent for consumer loans, while deposit rates are about 6 percent.

Analysts said capping lending rates at certain levels might be difficult given differences in the banks’ cost structures.

For example, state-controlled PT Bank Rakyat Indonesia, which lends to small businesses, may have higher costs because of its extensive network across the archipelago, analysts said.

“The current lending rates remain high because of certain things such as worries over non-performing loans and high overhead costs,” said one research analyst who declined to be quoted by name.

Darmin also said the rupiah would continue strengthening, supported by capital inflows.

“The capital inflows supported the gain, but not only in Indonesia,” he said.

The rupiah has risen 16.8 percent against the US dollar so far this year, making it one of the best performing currencies in Asia.

Reuters