Inflation Flying Too High, BI Re-Selecting Interest Rate 50 Bps To 4.75 Percent

JAKARTA Bank Indonesia (BI) has decided to raise the benchmark interest rate by 50 basis points (bps) to 4.75 percent. This aggressive attitude persists after previously the central bank also raised the BI 7-Day Reverse Repo Rate (BI7DRR) 50 bps last month.

BI Governor Perry Warjiyo said the same increase also applies to the deposit facility interest rate to 4 percent and the lending facility interest rate to 5.50 percent.

"The decision to increase interest rates is a front load, pre-emptive, and forward looking step to reduce inflation expectations which are currently too high (overshooting)," he said at a press conference today, Thursday, October 20.

According to Perry, the strategy taken is the first step to accelerate efforts to slow down inflation from the previous target.

"Bank Indonesia wants to ensure core inflation in the future returns to its target of 3 percent plus minus 1 percent earlier, namely to the first half of 2023," he said.

To note, the monetary authority last month targeted a low-inflation target starting in the third quarter of 2023 or in the second half of next year.

Furthermore, Perry explained that the rising BI rate will strengthen the policy of stabilizing the rupiah exchange rate so that it is in line with the fundamental value due to the stronger US dollar currency.

"(This effort also anticipates) The high uncertainty in global financial markets, amidst the increasing demand for the domestic economy, remains strong," he stressed.

VOI noted that Bank Indonesia this year has raised interest rates three times in three consecutive months, namely August 25 bps, September 50 bps, and last month it was 50 bps.

Meanwhile, the latest inflation rate (based on the consumer price index / IHK) according to the Central Statistics Agency (BPS) report is 5.95 percent year on year (yoy) in September 2022. This figure is the highest record this year after experiencing an increasing trend since February 2022.