Bank Indonesia (BI) maintained its benchmark interest rate, the BI 7-Day Reverse Repo Rate (BI7DRR), at 5.75% on Thursday (16/3/2023) last week. While the rate remained unchanged, Indonesia’s interest rate is considered high compared to other Southeast Asian countries.
Indonesia’s interest rate is in the top 5, below Laos, Myanmar, the Philippines, and Vietnam. Based on the latest interest rate records as of March 2022, the highest interest rate in Southeast Asian countries comes from Laos at 7.50%. Myanmar comes in second at 7.00%, while the Philippines and Vietnam are both at 6.00%.
Meanwhile, the benchmark interest rates of several neighboring countries are lower than Indonesia’s. Brunei Darussalam’s benchmark rate is set at 5.50%, while Singapore, a developed country, sets its benchmark at 3.60%. Malaysia is at 2.75%, Thailand is at 1.50%, and Cambodia has the lowest benchmark interest rate at 0.85%.
As previously reported, BI maintained the BI 7-Day Reverse Repo Rate at 5.75% on Thursday (16/3/2023) last week amid the increasingly heated global turmoil. The Deposit Facility rate is set at 5.00%, and the Lending Facility rate is at 6.50%.
The governor of BI emphasized that the decision is consistent with a pre-emptive and forward-looking monetary policy stance to ensure that inflation expectations and future inflation continue to decline.
Indeed, countries around the world are still combating inflation and facing high-interest rate eras.
Meanwhile, The benchmark interest rate, also known as the prime interest rate, is typically set by a country’s central bank and serves as a reference point for other interest rates in the economy. The benchmark interest rate can be affected by a variety of factors, including:
- Inflation: Central banks may increase interest rates to combat inflation by reducing the money supply in the economy.
- Economic growth: When the economy is growing too quickly, central banks may increase interest rates to slow down borrowing and spending, which can lead to inflation.
- Unemployment: If unemployment is low and the labor market is tight, central banks may increase interest rates to prevent wage inflation.
- Currency exchange rates: Changes in exchange rates can affect the benchmark interest rate. If a country’s currency is weakening, the central bank may increase interest rates to attract foreign investment and support the currency.
- Global events: Economic or political events that affect global financial markets can also impact the benchmark interest rate. For example, the COVID-19 pandemic led many central banks to lower interest rates to support economic growth and prevent a recession.
