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BI keeps interest rate low as virus surge prompts ‘flight to quality’
The flight to quality has sent the rupiah down more than 3 percent so far this year.
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A visitor walks inside the lobby of the Bank Indonesia headquarters in Jakarta in this undated photo. (JP/Berto Wedhatama)
B
ank Indonesia (BI) decided on Thursday to hold its benchmark seven-day reverse repo rate (7DRRR) at a record-low 3.5 percent to ensure financial stability as the outbreak of the Delta variant of the coronavirus compels investors to divert funds from developing to developed countries.
Following its two-day policy meeting, BI also kept the deposit and lending facility rates unchanged at 2.75 percent and 4.25 percent, respectively.
“This decision aligns with the need to maintain exchange rate and financial system stability due to global financial market uncertainty amid projected low inflation and efforts to support economic recovery from COVID-19,” BI Governor Perry Warjiyo said in a statement on Thursday.
BI wrote in the statement that investors had been dumping risky assets in a “flight to quality” after the Delta variant outbreak dampened the GDP growth outlook in developing economies such as India and many ASEAN countries.
This trend has seen the rupiah depreciate 3.39 percent year-to-date (ytd) as of July 21, which BI noted was less than declines seen in currencies of neighboring Southeast Asian countries, such as the Philippines, Malaysia and Thailand.
BI revised down Indonesia’s GDP growth outlook for this year to between 3.5 and 4.3 percent from between 4.1 and 5.1 percent due to mobility restrictions introduced to stem the second wave of COVID-19.
Read also: GDP growth forecast slashed to 3.7-4.5% as pandemic worsens
