BI Promises Not To Raise The Benchmark Interest Rate Excessively

Governor of Bank Indonesia Perry Warjiyo. (ANTARA PHOTOS/Hafidz Mubarak A.)

The rise in inflation will not occur continuously due to various efforts to handle it domestically. This was conveyed by the Governor of Bank Indonesia (BI), Perry Warjiyo. He also promised that BI would not increase the benchmark interest rate excessively.

Bank Indonesia believes the inflation rate will decrease to around 3 percent by the end of 2023 as the Fed’s monetary policy tightening begins to ease. The Fed will not continue to keep inflation at a high level, so he believes the impact on Indonesia will subside slowly.

He estimates that core inflation will decline more quickly, namely below 3 percent in the first half of 2023. Overall inflation will catch up with the decline so the annual inflation rate could be around 3 percent.

“At the end of next year, we estimate inflation to be around 3 percent, the Consumer Price Index [CPI], yes. If core inflation is below 3 percent in the semester I/2023, but if the CPI is due to impact-based, at the end of next year, it will be around 3 percent,” said Perry at the Indonesia Economic Outlook 2023 event, Wednesday (21/12/2022).

Perry believes that the provision of subsidies or fiscal policy will keep inflationary pressures under control. This offset external pressure when interest rates in the United States were still maintained high.

“We don’t need to raise benchmark interest rate excessively, aggressively like the United States or other countries. We will, in a measured way, ensure that core inflation returns below 4 percent in the first half of 2023. As early as possible,” he said.

It is known, Indonesia’s inflation was recorded at 5.42 percent in November 2022. Conditions began to subside after an increase in inflation occurred, reaching a peak of 5.95 percent in September 2022.

Records for the current year have exceeded the government’s estimate, with a target to maintain inflation at 3 ± 1 percent or a range of 3 — 4 percent. The prospect of a reduction in inflation next year is certainly a positive signal for the economy.