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BI unexpectedly hikes rate amid global uncertainty
Bank Indonesia deems the 25-basis-point increase necessary amid global uncertainty, even though inflation is at a low level.
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Bank Indonesia Governor Perry Warjiyo speaks at a press briefing following the central bank's monthly monetary policy meeting on April 18, 2023. (Bank Indonesia/-)
B
ank Indonesia (BI) has increased its benchmark interest rates by 25 basis points (bps) on the back of global uncertainties, despite the fact that inflation in the country has been on a declining trend for most of the year.
BI Governor Perry Warjiyo explained on Thursday that the hike in borrowing costs was a preemptive, forward-looking measure to control long-term inflation and protect the rupiah exchange.
“Global dynamics play out very fast and unpredictably. In last month’s meeting, we conveyed [our observation] based on the newest information back then, but two weeks later, changes took place very rapidly,” said Perry in a press briefing.
Following the central bank’s monthly policy meeting last month, Perry neither announced nor signaled any rate hike for the rest of the year, leading to a market consensus that the BI 7-Day Repo Rate (BI7DDR) would remain at 5.75 percent this month.
With the 25-bps increase, the benchmark rate is now at 6 percent, which Perry admitted was a “hard pill to swallow” but one that was needed to brace for ongoing uncertainty.
Several factors have been troubling investors over the past weeks and months, such as rising prices for oil and gas and numerous food commodities, increasing levels of government and personal debt amid higher funding costs, and a sudden escalation in violence in the Middle East to an all-out war between Israeli armed forces and Hamas.
The latter, many speculate, could lead to a wider conflict that may draw in Iran or other countries and constrain oil supply from the region, possibly catapulting prices well beyond US$100 per barrel.
