Bank Indonesia Rate Will Not Rise Again, What will be the fate of the Rupiah next?

Illustration (Photo: Doc. Antara)

JAKARTA – Governor of Bank Indonesia (BI) Perry Warjiyo firmly stated that his party does not see any more room to raise the benchmark interest rate again this year.

According to him, BI's aggressive stance on raising interest rates since August 2022 ended in January 2023 with a fixed interest rate of 5.75 per cent.

He conveyed this when holding a press conference after the February edition of the Board of Governors Meeting (RDG) of Bank Indonesia.

"We believe the BI rate is adequate. This means that there is no need for another increase", said Perry Warjiyo quoted on Friday, February 17.

The stance of the monetary authority is based on the controlled domestic inflation rate.

Perry explained, previously core inflation was estimated to be at the level of 3.7 per cent last month.

However, in reality, core inflation has fallen to 3.6 per cent.

Likewise, inflation is based on the Consumer Price Index (CPI), which is now more sloping compared to economic growth figures.

"Inflation fell faster and bigger than previously estimated", he said.

Perry added, this condition further supports Bank Indonesia's plan to achieve the core inflation target of 3 per cent plus minus 1 per cent in the first semester of 2023, and CPI inflation of 3 per cent plus or minus 1 per cent in the second semester of 2023.

"CPI inflation will return to below 4 per cent starting September 2023 after the based effect of last year's fuel price hike disappeared", he said.

For information, the main objective of BI to raise interest rates is to reduce the rate of inflation. Thus, this success makes the room for an increase in interest rates even smaller.

Meanwhile, the steps taken by the monetary authority to maintain the rupiah exchange rate, mainly due to pressure on the Fed Funds Rate, will be optimized in three other ways.

First, controlling imported inflation so that it doesn't have too deep an impact on the country.

Second, selling Government Securities (SBN) in the short term so that the yield offered to the market remains attractive.

And the third is the implementation of the Export Proceeds Foreign Exchange (DHE) policy in the form of imposing attractive interest rates for exporters and also special incentives for national banks.