For Rupiah, BI Is Projected To Hold The Benchmark Interest Rate At 3.50 Percent

Illustration of Rupiah Currency. (Photo: Doc. Antara)

JAKARTA - Bank Indonesia (BI) is expected to maintain the BI 7-Day Reverse Repo Rate (BI7DRR) at the level of 3.50 percent at the Board of Governors' Meeting (RDG) which will be decided today.

This prediction was made by the Institute for Economic and Social Research, University of Indonesia (LPEM UI) in its report which was quoted on Thursday, March 19. The think tank assumes that in general Indonesia's current macroeconomic performance is showing improvement.

"The indicators are clearly reflected in the increase in the consumer confidence index (CCI), the trade balance, and the decrease in daily COVID-19 cases," he said.

Then, the increase was driven by better expectations for economic activity after the first launch of the COVID-19 vaccine. However, positive sentiment from within the country began to fade since the end of February due to high pressure from external conditions.

"The defeat in the US market following higher-than-expected inflation figures reflects the optimistic outlook for economic recovery hitting all emerging markets, including Indonesia," he said.

Another impact mentioned by LPEM UI is that the rupiah has depreciated by 3.7 percent so far this year. This depreciation was also driven by massive capital outflows due to narrowing yield differences between the US and emerging-market assets.

"In this uncertain condition, we see that BI must be more vigilant about increasing external risks," he added.

Although low inflation continues, indicating weak aggregate demand, BI is forecast to continue to prioritize rupiah stability this month. Any expansionary monetary policy would be too detrimental to BI at the moment because the performance of economic conditions is also far from recovering.

Therefore, we see that BI needs to hold the policy rate at 3.50 percent this month as a precautionary measure to stabilize the rupiah," he said.

As reported by VOI previously, on Thursday, February 18, Bank Indonesia decided to lower the BI 7-Day Reverse Repo Rate (BI7DRR) by 25 basis points to 3.50 percent from 3.75 percent previously.

In addition, the monetary authorities also set the Deposit Facility interest rate at 2.75 percent and the Lending Facility rate at 4.25 percent.

BI Governor Perry Warjiyo said this decision was based on the consideration of the low rate of inflation in the country and the maintenance of the rupiah exchange rate against foreign currencies.

"On this basis, Bank Indonesia feels the need to lower interest rates in order to encourage efforts to recover the national economy," said Perry at that time.