The Jakarta Post
The government and Bank Indonesia (BI) are prioritizing economic stability over economic growth because external pressures still haunt the country’s economy, Economic Coordinating Minister Darmin Nasution said on Friday.
His remarks were related to BI’s the decision to increase its seven-day reserve repo rate (7DRRR) by 25 basis points (bps) to 5.75 percent on Thursday, following the Federal Reserve’s decision to increase its rate earlier that same day.
“If we don’t increase the rate, we will be under pressure,” the minister said, adding that because the country’s economic stability was under threat, the central bank needed to focus on the issue.
He conceded that BI’s decision would affect the country’s economic growth because the hike would push up lending rates.
“It means that we are in the high banking interest rate. We can do nothing,” Darmin said as quoted by kompas.com.
Meanwhile, Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira said the government needed to anticipate a slowdown in the growth of the manufacturing industry, following BI’s decision.
“Businesspeople will not too happy with the decision, particularly those in the manufacturing sector,” Bhima said, adding that the growth in the manufacturing industry, the largest contributor to the gross domestic product (GDP), would be below 5 percent.
However, he acknowledged that BI was in a difficult situation, because if the central bank had not increased the seven-day reverse repo rate, it would have to spend more of its foreign exchange reserve to defend the rupiah from external pressures. (bbn)