Bank Indonesia Holds Benchmark Interest Rate at 5.75%

Bank Indonesia (BI) announced that they were holding the benchmark interest rate or the BI 7-Day Reverse Repo Rate (BI7DRR) at 5.75 percent. BI has reasons why they are still withholding this number.

It is known that the Bank Indonesia Board of Governors’ Meeting (RDG) on 15-16 February 2023 decided to hold the benchmark interest rate at 5.75 percent. In line with this decision, the Deposit Facility interest rate remains at 5 percent, and the Lending Facility interest rate remains at 6.5 percent.

BI Governor Perry Warjiyo in a press conference on the results of the BI Board of Governors Meeting, Thursday (16/2/2023), gave information regarding the fixed reference interest rate.

According to him, BI’s monetary policy or interest rate is always based on inflation forecasts and Indonesia’s future inflation growth. The forecast is formulated from confidence in inflation, the consumer price index [CPI], and future economic growth

He explained that core inflation and CPI inflation in Indonesia decreased faster than Bank Indonesia had predicted. Perry said the central bank projects that core inflation will move at the level of 3 percent and the highest is 3.6 percent.

Meanwhile, he said last month core inflation reached 3.7 percent. According to him, the realization of core inflation in December 2022-January 2023 experienced a downward trend.

As for CPI inflation, Perry predicts that it will return to below the 4 percent level since September 2022. He assesses that there is a base effect from the increase in fuel prices (BBM) last year.

“Once the base effect is gone, Perry believes CPI inflation will be below 4 percent or a maximum of 3.5 percent in semester II/2023.

Due to the reasons and facts above, BI believes that holding the BI Rate at the level of 5.75 percent is the wisest choice. No further increases for the time being.