Perbanas Beware Of The High Gejolak Impact Of The Fed's Interest Rate On The Indonesian Economy

JAKARTA - Chairman of the National Bank Association (Perbanas) Kartika Wirjoatmodjo is wary of the impact of the turmoil in the benchmark interest rate of the United States Central Bank or the Federal Reserve on the Indonesian economy.

"We need to note that the high benchmark interest rate of the United States Central Bank has caused the rupiah exchange rate to be depreciated during 2023. We must always be vigilant," said Tiko during a media gathering in Bandung, West Java, quoted from Antara, Thursday, November 23.

If the weakening of the rupiah due to the high benchmark interest rate of the Fed continues, he assesses that there will be a potential for an increase in the risk of foreign exchange and instability of the national financial system, which ultimately has an impact on Indonesia's economic growth. In addition, there is no sign of a decrease in the Fed's benchmark interest rate could trigger a continued tightening of global liquidity.

He said Indonesia began to enter the year of the democratic party which could affect the risk appetite of investors and business actors.

"Some will tend to wait and see until there is certainty regarding the results of the political contestation and the changes caused, such as changes in policies and regulations," said Tiko.

Even so, BTN Chief Economist Winang Budoyo said Bank Indonesia (BI)'s move to raise the BI 7-Day Reverse Repo Rate (BI7DRR) by 25 basis points (bps) to 6.00 percent last October was the right step in responding to the fluctuation in the rupiah exchange rate.

A week before the October Board of Governors' Meeting (RDG), the rupiah weakened almost close to Rp. 16 thousand. The movement of the exchange rate is one of the important points that must be considered. So, I think to see BI's decision from the movement of the rupiah," explained Winang.

BI raised the benchmark interest rate in October as an effort to strengthen the stabilization of the rupiah exchange rate from global uncertainty.

In addition, the increase in interest rates is also a pre-emptive step and to mitigate its impact on imported inflation, so that inflation will remain in the target of three plus minus one percent in the remainder of 2023 and 2.5 plus minus one percent in 2024.