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Jakarta Post

COVID-19 economic impact stabilization obstacles

  • Haryo Kuncoro

Jakarta   /   Thu, March 26 2020   /  01:10 am

We commend the decision of the monthly board of governors' meeting of Bank Indonesia (BI) on March 18 and 19 to cut its benchmark interest rate, the BI seven-day reverse repo rate (BI 7-DRRR), by another 25 basis points to 4.5 percent, while the rupiah is in turmoil. This measure simply undermines the theoretical construction that has long been built. BI also lowered deposit facility rates by 25 bps to 3.75 percent and lending facility by 25 bps to 5.25 percent.

On the one hand, the rupiah had depreciated by 11.3 percent against the US dollar just within less than a month after the revelation of the COVID-19 outbreak in Indonesia. On the other hand, the volatile food prices have shown signs of increasing. Theoretically, the two factors are sufficient to meet the requirements for BI to hoist the benchmark interest rate.

Raising the policy rate would attract foreign capital i...