BI Still Holds Benchmark Interest Rate at 3.5%
7/21/2022
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| BI Masih Tahan Suku Bunga Acuan di Level 3,5% |
The Board of Governors of Bank Indonesia (BI) has again maintained its benchmark interest rate. Now Bank Indonesia (BI) 7-Day Reverse Repo rate (BI-7DRR) is still perched at the level of 3.5%
"The Board of Governors meeting in July 2022 decided to maintain the (BI) 7-Day Reverse Repo rate (BI-7DRR) at the level of 3.5%," said BI Governor Perry Warjiyo in a press conference, Thursday (21/7/2022)
Meanwhile, the Deposit Facility interest rate is 2.75%, and the Lending Facility interest rate is 4.25%.
BI's policy this month also indicates that there has been no change in the benchmark interest rate since the last 18 months.
The market consensus compiled by CNBC Indonesia is equally divided between those who expect an increase and those who maintain the benchmark interest rate.
Of the 14 institutions involved in forming the consensus, seven project that BI will raise the benchmark interest rate by 25 bps to 3.75% this month. Meanwhile, seven others estimate that BI will maintain the BI 7-DRR at 3.5%.
These two views seem to represent the current global situation where there are some central banks who choose to be very aggressive in raising interest rates while others keep interest rates low.
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Reasons for BI to Hold Interest Rates at 3.5% Despite World Shakes
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| Alasan BI Tetap Tahan Suku Bunga 3,5% Meski Dunia Guncang |
Bank Indonesia decided to maintain the benchmark interest rate or 7 Days Reverse Repo Rate or BI-7DRR at 3.5% in May 2022. Also with deposit facility interest rates and lending facility rates remaining at 2, respectively. 75% and 4.25%.
BI Governor Perry Warjiyo explained that the interest rate detention was in line with various assessments of global and domestic economic conditions.
"This decision is in line with the need to control inflation and maintain exchange rate stability, as well as continue to encourage economic growth, in the midst of high external pressures related to the Russia-Ukraine geopolitical tensions and the acceleration of normalization of monetary policy in various developed and developing countries," Perry explained at a press conference. , Tuesday (24/5/2022).
BI, said Perry, will continue to monitor the direction of inflation and take the necessary steps to ensure that inflation is controlled according to the set target. Inflation is considered under control and supports economic stability.
The Consumer Price Index (CPI) in April 2022 recorded inflation of 0.95% (mtm). Annually, CPI inflation in April 2022 was recorded at 3.47% (yoy), higher than the previous month's inflation of 2.64% (yoy), in line with rising global commodity prices, people's mobility, and the seasonal pattern of National Religious Holidays. (HBKN).
"Bank Indonesia continues to be aware of its impact on rising inflation expectations and takes the necessary steps to ensure controlled inflation stability going forward," he said.
However, this year, BI estimates that inflation will touch above 4%. "Overall, this inflation may be slightly above 4%. But not far from 4%," he explained.
In 2023, Perry continued, the inflation rate is estimated to slow down and is expected to return to within the range of 3% plus minus 1%. "No more than 4%, will return to below 4%," he said again.
In maintaining macroeconomic stability and promoting national economic recovery, monetary and fiscal policy coordination will continue to be improved, including Bank Indonesia's commitment to purchase IDR 224 trillion in government securities for health and humanitarian financing in the 2022 State Budget.
Improvements in the world economy continued but the risk was lower than previously estimated, accompanied by rising inflation and accelerating normalization of monetary policy in various countries.
The increase in Russia-Ukraine geopolitical tensions, the implementation of the zero Covid-19 policy in China, and the acceleration of normalization of monetary policy in various countries have an impact on weakening global economic growth.
"The volume of world trade is potentially lower than previously estimated in line with the risk of stalling global economic recovery and ongoing disruptions to global supply chains," he said.
Global commodity prices continued to rise, including energy, food and metal commodities, thus putting pressure on global inflation.
The increase in global inflation has accelerated the normalization of monetary policy in developed countries, including the US, and developing countries, which has an impact on increasing global financial market uncertainty.
Therefore, BI is still projecting the Indonesian economy to grow around 4.5% to 5.3% in 2022.
Meanwhile, BI noted that the rupiah depreciated 2.8% as of May 23, 2022 compared to the end of December 2021. Even so, the depreciation of the rupiah was claimed to be still better than the weakening of the exchange rate of other countries, such as India which was minus 4.1%, Malaysia 5.1% , and South Korea 5.9%.
