JAKARTA Bank Indonesia (BI) is known to tend to be moderate in setting benchmark interest rates amidst the current global uncertainty.
It is noted that since imposing the lowest interest rate of all time at 3.50 percent in 2020, the monetary authority has only raised the BI rate by 75 basis points (bps) to 4.25 percent.
This is in contrast to the steps taken by the US central bank, namely The Federal Reserve (The Fed), which has raised its interest rate by 300 bps throughout 2023 to 3.0-3.5 percent.
Due to this condition, the Governor of Bank Indonesia Perry Warjiyo gave an explanation.
According to him, there are some fundamental differences between BI's policy and the Fed.
"If in America inflation is very high and the economy is quite strong, why is it so aggressive to raise the feed fund rate," he said on the sidelines of a meeting between the Minister of Finance and the Governor of the Central Bank for G20 members (FMCBG) in Washington DC, United States, Wednesday, October 12 local time.
To note, inflation in Uncle Sam's country in August 2022 was recorded at 8.3 percent year on year (yoy). This figure is far above Indonesia's inflation score of 4.69 percent in August and 5.95 percent in September.
Just so you know, before the pandemic, inflation patterns in many developed countries tended to be lower than developing countries like Indonesia. This situation occurs because developed countries prioritize economic stability rather than emerging countries that require aggressive growth.
Therefore, Perry assessed that Indonesia's jiak could not immediately follow the pace of the rapid interest rate increase even though it was still in line with global trends.
"Our inflation is not as high as other countries, so the interest rate response is also not too high. This is also important to boost the economy," he said.
Another aspect explained by the BI boss is the influence of the interest rate on the power of the national currency.
"In developed countries, of course, it does not require exchange rate stabilization intervention. But in Indonesia, we continue to voice that the response to monetary policy alone is not enough with interest rates. So it is also necessary to stabilize the exchange rate. Likewise for stabilization in the financial market sector," he said.
For this reason, he continues to state his commitment to continue to increase synergy with the government in maintaining the stability of the Indonesian economy.
"So in an approach to the concept of thinking on how to formulate the policy, there is an agreement, namely the need for a national economic policy mix both fiscal and monetary," concluded Perry.
The English, Chinese, Japanese, Arabic, and French versions are automatically generated by the AI. So there may still be inaccuracies in translating, please always see Indonesian as our main language. (system supported by DigitalSiber.id)
