Revealed! BI Refuses To Raise Interest Rates Because It Doesn't Want To Hamper Economic Recovery

Head of the BI Department of Economics and Monetary Policy Wira Kusuma (Photo: screenshot of Youtube FMB9ID_IKP)

JAKARTA - Bank Indonesia (BI) some time ago set a strategic policy by continuing to use the reference interest rate of 3.50 percent.

Head of the BI Department of Economics and Monetary Policy, Wira Kusuma, said that the move was in line with the central bank's efforts to maintain the momentum of economic recovery.

"We see that the (economic) recovery process is currently underway. If, for example, this process is hampered, it could harm our economy", he said in a virtual dialogue entitled Economic Recovery Amid Global Uncertainty, Monday, July 25.

Wira explained that the monetary authority has the view that an increase in the BI rate must adhere to the indicators of rising core inflation.

“Until now, the source of inflation is the supply side. Of course, this cannot be answered by raising interest rates", he said.

According to Wira, BI's stance to maintain interest rates is also highly dependent on several macro considerations.

“How long are we going to keep this up? Of course, by looking at the core inflation, will it continue to increase, either because of core inflation expectations or from the depreciating rupiah exchange rate. Or it could be from other developments such as the domestic demand which is too strong", said Wira.

For information, the increase in BI's benchmark interest rate means encouraging banks to increase their credit interest rates. This of course brings its own burden to business actors to expand their business because the cost of funds will be higher.

If this condition is not properly mitigated, the wheels of the economy could be further depressed, resulting in a slower pace of recovery in the country.

Meanwhile, BI itself has maintained its benchmark interest rate of 3.50 percent since 2020 and is recorded as the lowest level in history in response to the impact of the COVID-19 pandemic.