Averse To Raising Interest Rates Due To Food Prices, BI: Defended Until There Are Signs Of Rising And Inflationary Pressure

BI Governor Perry Warjioyo (Photo: screenshot of the Ministry of Finance Youtube)

JAKARTA - Bank Indonesia (BI) will not respond in a hasty manner to the movement of inflation that continues to increase triggered by the current increase in food prices.

BI Governor Perry Warjiyo said that the central bank would still maintain its benchmark interest rate at 3.50 percent in the near future. Changes and adjustments to the BI rate will only be taken if a number of macro indicators have been met.

"As far as interest rate policy will be maintained at 3.5 percent until there are signs of an increase and fundamental inflationary pressures," he said online at a press conference of the Financial System Stability Committee (KSSK) on Wednesday, April 13.

According to Perry, the inflation rate which is now creeping up is not yet the main factor to shift interest rates. This is because the prices of basic necessities are still under control.

"So pressures on food prices or energy prices, of course, Bank Indonesia will not respond to the first impact. If the response is the propagation impact, if inflation then has a fundamental effect, the indicator of course is core inflation," he said.

Furthermore, the BI boss revealed that the signal for an increase in interest rates had actually been sent through the absorption of liquidity in the market.

"The interest rate response will be preceded by steps to reduce liquidity or normalize liquidity, which we have carried out with an increase in the minimum statutory reserve requirement," he stressed.

For information, the BI rate of 3.50 percent is the lowest level in the history of Bank Indonesia. This figure has been a reference since 2020 to respond to the pandemic situation and encourage economic recovery.

Meanwhile, inflation is still within the government's target range, which is 3 percent plus minus 1 percent. The Central Statistics Agency (BPS) report states that in March 2022 there has been inflation of 2.64 percent on an annual basis (year on year / yoy) or compared to March 2021.

"What is clear is that interest rate policy needs to be based on inflation forecasts and future economic growth," Perry concluded.