The 7-day repo rate, to be positioned as the benchmark interest rate starting this month, should accelerate monetary policy transmission in Indonesia, leading to more effective interest rate adjustments in the financial markets.
he 7-day repo rate, to be positioned as the benchmark interest rate starting this month, should accelerate monetary policy transmission in Indonesia, leading to more effective interest rate adjustments in the financial markets.
Samuel Sekuritas economist Rangga Cipta said the new benchmark interest rate, which was set to replace the Bank Indonesia (BI) rate starting Aug. 19, would force the financial industry to abandon the previous benchmark with its longer maturity for the new benchmark.
“The impact on monetary policy transmission should be faster, from the usual period of six months to much faster than that. And that is what a benchmark interest rate should be,” he said in an economic discussion on the sidelines of the Executives’ Meeting of East Asia-Pacific (EMEAP) Central Banks held in Bali on Saturday.
The more interesting question, he said, would be what the Financial Services Authority (FSA) would do to follow up on the changes in the benchmark interest rate to assure that the policy could be transmitted effectively to industry.
“In this situation, we also need to take a look at the yields of government bonds as rising capital inflows may decrease market yields. This, indirectly, will accelerate transmission of the easing monetary policy into the bond market,” he said. (ags)
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