Bank Indonesia (BI) has reiterated that there is no need for interest rates to rise any further. Several factors such as the forecasted inflation rate and the appropriate policy direction have led to BI’s decision.
The statement was made by Bank Indonesia Governor Perry Warjiyo. According to him, the 225 basis point increase in the benchmark interest rate since August 2022 was sufficient to reduce inflation levels by year-end. so that, benchmark interest rates will not rise again.
Perry stated that BI’s policy stance is consistently aimed at controlling domestic inflation. “So why did we decide that [the interest rate hike] was sufficient? It is because we want to ensure that inflation levels return to the target,” he said at the CNBC Economic Outlook 2023 event on Tuesday (28/2/2023).
He predicted that core inflation would remain below 4 percent in the first half of 2023, and consumer price index (CPI) inflation would return to below 4 percent in the second half of 2023.
“Therefore, there is no need for further interest rate hikes because inflation will return to the target, and this is part of supporting economic growth,” Perry explained.
As is well known, BI at the February 2023 Board of Governors Meeting decided to maintain the benchmark interest rate at 5.75 percent. Perry said that the decision was consistent with the preemptive and forward-looking monetary policy stance to ensure a continued decline in inflation expectations and future inflation.
In January 2023, inflation continued to decline, recording a monthly rate of 0.34 percent or 5.28 percent on an annual basis.
The decrease in inflation during this period was driven by a decline in core and administered price inflation, as well as stable volatile food inflation.
BI views this development as a positive result of the central bank’s front-loaded, preemptive, and forward-looking monetary policy to control inflation, supported by the control of volatile food inflation through the National Movement for Controlling Food Inflation.