JAKARTA - Bank Indonesia (BI) is planned to hold a press conference after the Board of Governors Meeting which has been taking place since yesterday. One of the important agenda items to be announced is related to the determination of the BI 7-Day Reverse Repo Rate (BI7DRR) benchmark interest rate.
This decision was eagerly awaited by financial market players considering the signal that the central bank's interest rate hike was certain to occur. This assumption itself is based on several things.
First, today's BI rate of 3.50 percent is the lowest level in history. This figure has been in place since 2020 as a response to reduce the economic impact caused by the COVID-19 pandemic. In line with this, the current economic condition is much better as reflected in the improvement in a number of economic indicators.
Second, domestic inflation that continues to rise has forced the central bank to make adjustments to monetary policy. Although the amount of inflation is still within the target of 3 percent plus minus 1 percent, signs of an increase are already starting to appear ahead of the momentum of Ramadan.
This was confirmed by the release of the Central Statistics Agency (BPS) which stated that inflation had entered a year-on-year (yoy) upward trend since the middle of last year, although it had slightly sloped in February 2022 with 2.06 percent.
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Meanwhile, the third factor came from external where the US central bank The Federal Reserve (The Fed) has decided to raise its benchmark interest rate by 25 basis points on Wednesday, March 16 yesterday. Through this move, the Fed broke eggs by hoisting interest rates up for the first time in nearly four years.
In dealing with this latest situation, it seems that Bank Indonesia must really think about how it will affect the Indonesian economy. The reason is, if BI does not make a similar adjustment, the potential for capital outflow will be stronger.
On the other hand, if the monetary authority raises the benchmark interest rate, it will certainly have an impact on credit interest, which will clearly burden the business world in supporting economic recovery. On the other hand, banking intermediation is still relatively sloping with the lowest interest rate.
All these descriptions will be answered by the announcement of the Governor of Bank Indonesia which is planned to be broadcast virtually today at 14.00 p.m.
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