Interest Rate Rises, Economists Call Economic Growth Rate Can Be Under 5 Percent

JAKARTA - Center of Reform on Economics (CORE) Indonesia economist Mohammad Faisal said the rate of national economic growth has the potential to be depressed in the increase in the benchmark interest rate of Bank Indonesia 7 Days Reverse Repo Rate by 50 basis points to 4.25 percent.

Economic growth is potentially affected, especially in the final quarter of 2022. This could be below 5 percent year on year," said Faisal, quoted by Antara, Friday, September 23.

He said the increase in the BI benchmark interest rate would make conventional banking increase loan interest rates and deposit interest rates so that the demand for business actors and the public for credit is reduced.

This will hamper credit disbursement to real sectors, where so far real sector loans have grown by 10 percent, already good. To MSMEs (Micro, Small, and Medium Enterprises) are also above 10 percent and this has the potential to weaken back to single digits," he said.

In addition to hampering credit disbursement, increasing BI's benchmark interest rates can also pay people's purchasing power to also decrease.

According to him, the government needs to protect the purchasing power of the people, especially the poor and vulnerable to poverty, as well as help business actors in sectors who have not recovered from the COVID-19 pandemic.

Low-end people who are vulnerable to inflation as well as policies to increase BI's benchmark interest rates must be protected with maintained or added incentives.

"Meanwhile, stronger and faster sectors can recover from the pandemic, the incentives can be reduced to provide a sense of justice between the community and business actors," he said.