JAKARTA - Bank Indonesia (BI) said that the normalization of monetary policy in developed countries, especially in the United States (US), would require the central bank to formulate appropriate strategic steps to maintain national macroeconomic stability.
BI Governor Perry Warjiyo revealed that his party reads the policy direction of the US central bank (The Federal Reserve / The Fed) will increase the benchmark interest rate or the Fed Fund Rate five times this year.
However, with the latest developments, the BI boss believes that the Fed will raise interest rates no less than seven times throughout 2022.
"Initially we estimated (up) five times this year, but it looks like it will be seven times", he said in a webinar entitled Accelerating Economic Recovery and Maintaining Stability, Monday, March 21.
In Perry's explanation, there are several important indicators why Bank Indonesia believes that the Fed will continue to adjust its benchmark interest rate more than the initial estimate.
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"High inflation in the United States coupled with rapid economic growth is likely to encourage the US central bank to raise interest rates more often, including what has been done this March", he said.
For information, the inflation rate in the United States in February 2022 was 7.9 percent on an annual basis (year-on-year/YoY). This figure is much higher than January 2022 which was 7.5 percent YoY as well as the highest level of inflation in the last 40 years.
To note, last week the Fed decided to raise its benchmark interest rate by 25 basis points (bps). This move is the first time the Fed has increased interest rates in nearly four years.
Meanwhile, Bank Indonesia itself chose to keep the BI 7-Day Reverse Repo Rate (BI7DRR) at 3.50 percent. This policy was taken with the consideration of maintaining the stability of the rupiah exchange rate and keeping domestic inflation under control.
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