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BI hikes rate for first time since 2018, warns inflation could exceed 5%
Bank Indonesia has raised its benchmark rates for the first time in five years in a "preemptive" move to anticipate rising core prices, while warning that headline inflation could exceed 5 percent by the end of the year.
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Bank Indonesia Governor Perry Warjiyo (center), flanked by BI Senior Deputy Governor Destry Damayanti (left) and BI Deputy Governor Erwin Rijanto, briefs reporters in March 2020 at the Bank Indonesia headquarters in Jakarta. (Antara/Indrianto Eko Suwarso )
B
ank Indonesia (BI) has raised all its key interest rates for the first time since 2018 to anticipate rising core prices, warning that headline inflation could exceed 5 percent this year.
The BI board of governors raised its benchmark seven-day reverse repo rate (7DRRR) by 25 basis points (bps) to 3.75 percent on Tuesday, followed by a 0.25 bps increase to the lending and deposit facility rates to 4.50 and 3.00 percent, respectively.
The 25-bps hike is in line with a forecast by financial research firm Moody’s Analytics, while most economists polled by financial news provider Bloomberg had expected no increase.
“The decision to increase interest rates is a preemptive and forward-looking step to mitigate the risk of rising core inflation and inflation expectations due to the increase in nonsubsidized fuel prices and volatile food inflation, as well as strengthening the stability of the rupiah exchange rate,” BI Governor Perry Warjiyo said after the board’s two-day monthly monetary policy meeting on Aug. 22 to 23.
Read also: Inflation may exceed 4% next year, BI warns, upping pressure on govt
Perry said the decision was not a response to skyrocketing volatile and administered prices but rather a measure to prepare the economy for a possible “second-round impact” on core prices.
