Inflation Flow Is Believed To Remain High Even Though BI Has Raised The Benchmark Interest Rate

Illustration (Photo: Doc. Ministry of Finance)

JAKARTA – The University of Indonesia Institute for Economic and Community Research (LPEM UI) has released its latest study on the steps taken by Bank Indonesia (BI) to raise its benchmark interest rate by 25 basis points last month.

In a report published today, LPEM UI researcher Chaikal Nuryakin said that BI's decision to increase the BI 7-day (Reverse) Repo Rate (BI 7DRR) to a level of 3.75 percent after holding on since February 2021 was an effort to control inflation.

According to Chaikal, this is in line with the record inflation on an annual basis (year on year / yoy) for the past three months which has exceeded the target target of 3 percent plus minus 1 percent.

"However, we estimate that the yoy inflation rate will still be above the inflation target range despite the increase in the BI 7 DDR interest rate," he said in a written statement, Tuesday, September 6.

Chaikal added, at almost the same time the government decided to adjust the price of subsidized fuel oil (BBM) which created its own pressure in an effort to maintain the inflation rate.

"The possibility of inflation in September above 4.30 percent is quite large if there are no further efforts to suppress the inflation rate," said Chaikal.

For information, Bank Indonesia stated that the increase in the benchmark interest rate was intended to mitigate the risk of an increase in core inflation and inflation expectations due to fuel prices and inflation due to volatility in food prices.

"This is also an effort to strengthen the stability of the rupiah exchange rate so that it is in line with its fundamental value in line with the high uncertainty in global financial markets amid increasingly strong domestic economic growth," said BI Governor Perry Warjiyo on August 23.

In its development, the monetary authority has begun to be realistic by stating that inflation for this year is projected at 4.15 percent.