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BI lifts rates more than expected after Fed hike
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Bank Indonesia (BI) Governor Perry Warjiyo talks during a livestreamed press briefing after the central bank's monthly board of governors’ meeting on June 18, 2020. (Courtesy of Bank Indonesia (BI)/-)
B
ank Indonesia (BI) has passed its second key interest rate hike this year, just a day after the United States Federal Reserve raised rates by 75 basis points (bps) for the third time in a row.
The BI board of governors decided on Thursday to lift the benchmark seven-day reverse repo rate (7DRRR) by 50 bps to 4.25 percent, a figure last seen in June 2020, while the lending and deposit facility rates went up 25 bps to 5.00 and 3.50 percent, respectively.
Economists from state-owned Bank Mandiri and financial research firm Moody's Analytics had expected the rates to rise by just 25 bps, as had those polled by Reuters.
BI Governor Perry Warjiyo said more aggressive interest rate hikes were “not needed” in Indonesia as the country had managed second-round impacts on core inflation better than other countries.
"The decision to raise interest rates is a front-loaded, pre-emptive and forward-looking measure to lower inflation expectations and ensure that core inflation returns to the target of 3 plus or minus 1 percent in the second half of 2023," Perry said at a press conference after the board's monthly two-day monetary meeting ended on Thursday.
Read also: BI hikes rate for first time since 2018, warns inflation could exceed 5%
BI said the front-loading strategy was necessary to anticipate rising inflation expectations and rein in second-round impacts from price hikes, noting that it took time for interest rates to impact inflation.
