Bank Indonesia has signaled an increase in the benchmark interest rate or the BI 7-day reverse repo rate (BI7DRRR). BI has hinted that they will raise their benchmark interest rate if there is another increase in inflation.
This was conveyed by Deputy Governor Juda Agung in a discussion themed ‘Central Bank Policy Mix for Stability and Economic Recovery’ which is a series of the third meeting of the Finance Ministers and Central Bank Governors (FMCBG) and the Finance Central Bank Deputies Meeting (FCBD) today, Wednesday (13 /7/2022) at the Bali Nusa Dua Convention Center.
“Bank Indonesia will remain vigilant about inflationary pressures and their impact on inflation expectations, and is ready to adjust interest rates if there are signs of an increase in core inflation,” he explained.
Inflation in June 2022 was recorded at 0.61% compared to the previous month (month-to-month/mtm). Calendar year inflation was 3.19%.
On an annual basis (year-on-year/yoy), inflation in June 2022 was at 4.35%. This is higher than May 2022 which was 3.55% and the highest since June 2017.
Meanwhile, core inflation reached 2.63% and government-regulated prices at 5.33%, and volatile at 10.3%.
“Inflation increased driven by pressure from the supply side as a natural result of rising international commodity prices. Core inflation is still within the target range of Bank Indonesia,” he explained.
BI realizes that the current situation is not easy. The unfinished COVID-19 pandemic and the endless war between Russia and Ukraine will harm the global economy. Indonesia and many countries in the world will be affected.
“To respond to current challenges, Bank Indonesia’s current policy mix is ​​aimed at maintaining macro stability, facilitating economic recovery, and navigating the digital economy and finance,” said Juda.
Meanwhile, the BI benchmark interest rate is currently at the level of 3.5 percent since February 2021. Even though the US central bank has raised its benchmark interest rate (Fed Fund Rate) by 150 basis points since the beginning of 2022.
The economist for the Center of Economic and Law Studies, Bima Yudistira, previously said that BI’s stance on holding back the increase in the benchmark interest rate caused foreign funds to flow out.
Therefore, according to him, BI needs to increase its interest rate by around 25-50 basis points so that this does not happen.
“BI needs to raise interest rates 25-50 bps to withstand capital outflows,” said Bhima when contacted by Kompas.com some time ago.
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