BI board to make difficult decision on possible rate increase
The Jakarta Post
The Bank Indonesia board of governors will make a difficult decision in their meeting on Thursday on whether to increase its benchmark seven-day reverse repo rate ( 7DRRR ) to defend the rupiah, at the expense of the stock market and slowdown in economic growth.
Erdikha Elit Sekuritas analyst Okky Jonathan said in Jakarta on Wednesday that many investors wanted to see the central bank increase its reference rate, which was now at 4.25 percent, but there was a risk in taking such a decision.
“In the long term, many people will leave the Indonesian stock market,” he said as quoted by tribunnews.com, saying that it was not only foreign investors who wanted to leave the market, but also domestic investors.
Okky said that if BI increased the 7DRRR, investors might prefer to put their money in banks.
He projected that BI would maintain the reference rate because the rupiah depreciation, currently quoted at above 14,000 against the US dollar, was not caused by the country’s economic fundamentals but by external factors that had also hit other currencies.
Samuel Sekuritas chief economist Lana Soelistianingsih had a different opinion, and said that it was time for BI to increase the reference rate. She suggested that the increase should be no more than 25 basis points, so it would not seriously hamper economic growth.
She also said the BI rate increase should be implemented in stages. “If the objective is to control the rupiah, it is not enough [to increase] only once. It should be four times until the total increase reaches 1 percent,” said Lana as quoted by kompas.com.
She admitted there was a risk of a slowdown in the economy if BI increased the reference rate. “But we can only control the rupiah exchange rate through the [BI] reference rate on the risk that our economy will not grow above 5 percent,” said Lana. (bbn)
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