The Jakarta Post
Vice President Jusuf Kalla's demand that Bank Indonesia (BI) lower its seven-day reverse repo rate (7DRRR) is being criticized as a form of government intervention in the central bank.
“The statement by Jusuf Kalla was a mistake because the central bank is independent,” said a University of Indonesia economist, Fithra Basri, in Jakarta on Wednesday as quoted by kontan.co.id.
Kalla had called on BI to lower its reference rate, which was currently at 6 percent. He said BI needed to ease the rate in an effort to attract more people to invest in manufacturing industries to help boost exports.
Fithra said government intervention in the central bank could confuse the market because the two institutions had different functions.
BI’s 7DRRR has the function of stabilizing the rupiah exchange rate, he said, adding that if the rate was decreased improperly it could cause the rupiah to depreciate.
Previously, BI Governor Perry Warjiyo said the central bank would maintain its tight money policy to keep the rupiah stable and to control the country’s current account deficit.
BI recorded a US$31.1 billion current account deficit in 2018, which was 2.98 percent of gross domestic product (GDP), a significant increase from a $17.29 billion deficit, which was 1.7 percent of GDP, in 2017. The deficit increased by $9.1 billion (3.57 percent of GDP) in the fourth quarter of 2018.
Perry said BI and the government had to cooperate to narrow the current account deficit to 2.5 percent of GDP, which was the target for this year. (bbn)