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BI remains dovish despite rising inflation
Bank Indonesia has held the country’s most important interest rate at 3.5 percent while central banks around the world are hiking rates in response to growing price pressure.
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Bank Indonesia Governor Perry Warjiyo speaks during an event at the International Monetary Fund and World Bank annual meeting in Nusa Dua, Bali, on Oct. 14, 2018. (AFP/Sonny Tumbelaka)
B
ank Indonesia (BI) has refrained from raising its benchmark interest rate even as the nation faces inflationary pressure and a depreciating currency.
In a virtual press briefing on Thursday, the central bank announced that its seven-day reverse repo rate (7DRRR) will remain at a record low level of 3.5 percent. It also kept its lending and deposit facility rates unchanged at 4.25 and 2.75 percent, respectively.
"This decision is consistent with the core inflation forecast, which is still under control amid the risk of the impact of the global economic slowdown on domestic economic growth," BI Governor Perry Warjiyo said after the monthly two-day monetary policy meeting.
Read also: Inflation soars more than expected, driven by food prices
Perry said there was a significant difference between headline inflation, or the increase in the consumer price index (CPI), and core inflation, which he said was the main indicator for BI’s benchmark interest rate decisions.
Statistics Indonesia (BPS) announced earlier this month that inflation increased to 4.35 percent year-on-year (yoy) in June, the highest rate since June 2017, with the expenditure category of food, beverages and tobacco still the dominant driver of consumer prices.
Perry acknowledged that this year's headline inflation could fall between 4.5 and 4.6 percent, which marks the latest upward revision to the central bank’s forecast, up from the previously announced projection of 4.25 percent, but said core inflation would stay between 2 and 4 percent.
