Bank Indonesia (BI) finally decided to raise the reference rate or BI 7-Day Reverse Repo Rate (BI7DRR) again by 25 bps to 5.75 percent. This decision was taken at the Bank Indonesia Board of Governors’ Meeting (RDG) on 18-19 January 2023.
Governor of BI Perry Warjiyo, in a virtual press conference, Thursday (19/1/2023), said, “The meeting of the BI board of governors on 18-19 January 2023 decided to increase the reference rate or BI 7-day reverse repo rate by 25 bps to 5.75%.”
Perry said the Deposit Facility rate was 25 bps to 5 percent, and the Lending Facility rate was 25 bps to 6.5 percent.
According to him, the decision to raise interest rates more measurably is a follow-up step to be front-loaded, pre-emptive, and forward-looking.
BI also ensures the continued decline in inflation expectations and inflation so that core inflation is maintained within the range of 2-4 percent.
“BI believes that the increase in BI7DRR by 225 bps accumulatively since August 2022 to 5.75 percent is sufficient to ensure that core inflation remains in the range of 2-4 percent in the semester I/2023 and CPI inflation returns to the target of 2-4 percent in semester II/2023,” he said.
Meanwhile, the increase in the benchmark interest rate was not predicted in advance. PermataBank economist Josua Pardede said that BI is expected to hold its benchmark interest rate at 5.5%.
This is because the central bank considers inflation at the end of 2022 which was recorded to be lower than forecast and the core inflation rate which is still under control at around 3.4%.
Furthermore, Bank Mandiri economist Faisal Rachman said that the further increase in the benchmark interest rate by 25 basis points was a step to keep inflation in check, which is currently on a downward trend.
An increase in interest rates is also needed to ensure inflation can return more quickly to within the target of 2 to 4 percent.