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BI hikes rate by 50 bps, gap with Fed narrows further
The dollar has strengthened in recent months as Bank Indonesia has been raising its benchmark interest rate at a slower pace than the United States Federal Reserve.
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Bank Indonesia Governor Perry Warjiyo is seen in the BI building in Jakarta in this file photo. (Courtesy of Bank Indonesia/-)
B
ank Indonesia (BI) has raised its key interest rates for a third consecutive month, continuing to tighten monetary policy, albeit at a slower pace than the United States Federal Reserve (Fed).
BI’s board of governors voted on Thursday to increase the seven-day reverse repo rate (7DRRR) by 50 basis points (bps) to 4.75 percent. Like the benchmark rate, the lending and deposit facility rates were also upped by 50 bps to 5.5 and 4 percent, respectively.
The central bank’s decision fell in line with forecasts from state-owned lender Bank Mandiri and financial research firm Moody’s Analytics.
“The decision to increase interest rates is a front-loaded, pre-emptive and forward-looking measure to reduce overshooting inflation expectations and ensure future core inflation returns to the target range of 3 plus/minus 1 percent in the first half of 2023,” BI Governor Perry Warjiyo told reporters after BI’s monthly two-day monetary policy meeting ended on Thursday.
The central bank noted that, while the dollar had risen sharply against other currencies, as reflected in the DXY index’s 18.1 percent year-to-date (ytd) rise to 112.98 on Wednesday, the rupiah had depreciated less than other currencies.
BI data show that the rupiah was down 8.03 percent ytd against the dollar on Wednesday, less than the currencies of India, Malaysia and Thailand, which declined 10.42 percent, 11.75 percent and 12.55 percent, respectively, over the same period.
Nonetheless, Indonesia’s supreme monetary authority warned that the Fed was increasing its key interest rate faster than previously expected as it had adopted a “higher for longer” strategy.
