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New reference rate to closely-affect inflation, outflows: Minister
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A woman walks past Bank Indonesia. The central bank has announced that a new monetary policy on a new benchmark interest rate will be introduced on April 15 . (Kontan/Muradi)
T
he central bank's plan to change its reference rate to a more effective monetary policy tool is also expected to affect inflation and capital outflow, a top minister says.
Bank Indonesia has used a monthly basis benchmark interest rate (BI rate). However, the reference rate has had a limited impact on inflation and capital flow, said Coordinating Economic Minister Darmin Nasution.
"For example, the inflation rate was only 3.35 percent last year and the BI rate was 6.75 at the time. Whereas the BI rate should reflect inflation, the gap was very wide," he said at the State Palace in Jakarta on Thursday.
He said other monetary instruments that were more effective in affecting inflation were currently under review by the central bank to replace the BI rate. The seven-day reverse repurchase (repo) rate is among the tools being considered to replace the existing benchmark.
"Possibly it will be linked to reverse repo," Darmin went on.
Unlike the BI rate, which is nontransactional and does not reflect interest rates in the money market, the seven-day repo rate is transactional and closely tied to the market. (ags)
