Home MONEY & FINANCE Benchmark Interest Rates Officially Rise, Rupiah Strengthens!

Benchmark Interest Rates Officially Rise, Rupiah Strengthens!

Source: Dimas Ardian/Bloomberg

Bank Indonesia (BI) decided to increase the BI 7 Days Reverse Repo Rate (BI7DRR) by 25 basis points to 3.75%. This policy was decided at the Board of Governors Meeting (RDG) Tuesday (23/8/2022). Some market parties were surprised by BI’s decision.

BI Governor Perry Warjiyo in a press conference after the RDG, Tuesday (8/23/), said, “The Bank Indonesia Board of Governors Meeting on August 22-23 2022 decided to increase the BI 7 Day Reverse Repo Rate by 25 basis points (bps) to 3 .75%, Deposit Facility interest rate is 3%, and Lending Facility interest rate is 4.5%.”

According to him, this policy was taken after considering global and domestic economic conditions. From a global perspective, Perry assessed that the economic recovery process would be disrupted amid a surge in inflation and monetary policy in several countries.

“The global economy is at risk of slower-than-expected growth, accompanied by increased risks of stagflation and heightened financial market uncertainty,” Perry said.

The results of this RDG are beyond market expectations. Some consensus states that the majority of respondents expect MH Thamrin to still maintain the benchmark interest rate.

Of the 15 institutions involved in forming the consensus, 13 projected that BI would maintain the benchmark interest rate at 3.50%. The other two expect BI to raise interest rates by 25 bps to 3.75% this month.

After the announcement, the rupiah, which had previously weakened above Rp. 14,900/US$, immediately turned stronger.

At 14:30 WIB, the rupiah was at Rp 14,850/US$, strengthening 0.24% on the spot market, Refinitiv data reports.

On the other hand, Finance Minister Sri Mulyani believes that a 25 basis point increase in Bank Indonesia (BI) interest rates this month will not disrupt the economic recovery.

According to her, the foundation of the domestic economy is strong enough. This is reflected in the positive economic growth last year and the second and second quarters of 2022 which grew above 5 percent.

“Yesterday the economic recovery was quite strong, so in this case, we see it is still sufficient,” Sri Mulyani said after the Budget Board Meeting, Tuesday (22/8).

She also believes that the decision taken by BI will take into account inflation due to the recent increase in prices of basic commodities. Such as the price of eggs, chicken, to chili.

“So it is certain that the decision made by BI has made the best calculation of various factors. Just like the government earlier, many factors have been seen,” She added.

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