Bank Indonesia (BI) has decided to maintain its benchmark interest rate, the BI 7-Day Reverse Repo Rate (BI7DRR), at 5.75 percent during its Governor Council Meeting on March 15-16, 2023.
The decision was announced by BI Governor Perry Warjiyo during a press conference on Thursday, March 16, 2023.
The Deposit Facility rate will remain at 5 percent, and the Lending Facility rate at 6.5 percent, in line with this decision.
Governor Warjiyo explained that the decision to keep the benchmark interest rate unchanged is a continuation of BI’s “front-loaded, preemptive, and forward-looking” monetary policy stance.
This decision aims to ensure that the decline in inflation expectations and future inflation continues.
“This decision is consistent with our preemptive and forward-looking monetary policy stance to ensure that inflation expectations and future inflation continue to decline,” he said.
Prior to the announcement, economists had expected BI to keep its benchmark interest rate at 5.75 percent.
Bank Danamon economist Irman Faiz noted that BI’s interest rate policy takes into account the current level of inflation, which is still considered manageable.
“BI’s focus is more on internal factors of core inflation. So far, core inflation remains low,” he said on Wednesday, March 15, 2023.
On the external front, Faiz said that the issues facing some banks in the United States would create an expectation that the Fed will be less hawkish, which would support the strengthening of the rupiah.
Faiz also believes that BI is likely to maintain its benchmark interest rate at the current level for the maximum period due to the sustained low level of core inflation.
“However, if the pressure from the Fed Fund Rate on the rupiah increases, BI may adjust its interest rate level. We’ll see how the FOMC goes this month,” he said.
Teuku Riefky, macroeconomics and financial market economist at the LPEM FEB UI, believes that BI must maintain its interest rate policy at 5.75 percent this month while continuing to apply macroprudential measures to support growth momentum.
In February 2023, the annual inflation rate in Indonesia was recorded at 5.47 percent, slightly higher than the previous month’s inflation rate of 5.28 percent.
This figure is still above the central bank’s upper target of 4 percent for nine consecutive months.