Keep Rupiah Stability And Anticipate Uncertainty Of Global Financial Markets, Bank Indonesia Has A Room For Interest Rate 50 Bps

JAKARTA - The FEB UI Institute for Economic and Community Research (LPEM) stated that Bank Indonesia (BI) still has room to raise the BI-7 Day Reverse Repo Rate (BI7DRR) by 50 basis points (bps) to 5.25 percent to maintain the stability of the rupiah exchange rate in the era of increasing global financial market uncertainty and appreciation of the United States (US) dollar.

"Considering the current inflation rate that has been above the central bank's target range for five months, BI needs to increase the policy interest rate by 50 bps to 5.25 percent this month to maintain rupiah stability," said LPEM economist FEB UI Teuku Riefky as quoted by LPEM FEB UI quoted by Antara, Wednesday, November 16.

He said the increase in BI's benchmark interest rate would help limit the amount of capital outflow, prevent further rupiah depreciation, and limit inflationary pressures from imported goods.

In addition, to maintain an attractive spread with the Fed's benchmark interest rate, which in early November was raised again by 75 bps, leaving the target currently in the range of 3.75 percent to 4.00 percent.

He explained that the space to increase BI's benchmark interest rate was still available because the national economy, which grew higher than expected, was 5.72 percent year on year (yoy) in the 2022 IIII quarter, up from the previous 5.44 percent yoy in the second quarter of 2022.

"Indonesia's economy grew higher than expected in the third quarter, which allowed Bank Indonesia to have the flexibility to continue its tightening policy further," said Riefky.

He explained that growth in the 2022 III quarter occurred thanks to household consumption and exports which grew solidly by 5.39 percent yoy and 21.64 percent yoy, respectively, because Indonesia was still enjoying the high price of global commodities.

"In addition, the growth in household consumption is driven by increased expenditure on middle to upper class households, which shows that the economic recovery continues and strengthens despite global challenges," Riefky said.

For information, BI held the BI Board of Governors Meeting (RDG) on November 16 and 17 to determine the most appropriate monetary policy in the midst of the current national and global economic situation.