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BI holds policy rate at 3.5%, sets up MSME financing boost
Bank Indonesia held the seven-day reverse repo rate (7DRRR) at 3.5 percent, maintaining its pro-growth monetary stance as the economy faces a resurgence of COVID-19 cases.
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ank Indonesia (BI) announced on Thursday that it would hold its benchmark interest rate at a record-low 3.5 percent, a stance intended to accommodate economic recovery in response to slow business activity during the ongoing second COVID-19 wave.
Following a two-day policy meeting, the central bank also held its benchmark deposit facility rate at 2.75 percent and lending facility rate at 4.25 percent.
“This decision is in line with the need to ensure stability in the rupiah exchange rate and the financial system, amid low inflation and efforts to boost economic growth,” said BI Governor Perry Warjiyo on Thursday.
BI is also set to introduce an inclusive macroprudential financing ratio (RPIM) policy starting in September, which it hopes will improve financing for micro, small and medium enterprises (MSMEs) and related parties.
The central bank maintained its 2021 forecast of gross domestic product (GDP) growth of between 3.5 and 4.3 percent and inflation of between 2 and 4 percent.
Read also: BI maintains low interest rate amid virus surge
In July, the consumer price index (CPI) rose by 1.52 percent year-on-year (yoy), less than both the previous month and a year earlier, Statistics Indonesia (BPS) data shows.
Perry added that the rupiah had depreciated 2.24 percent year-to-date (ytd) as of Aug. 18 but had appreciated 0.63 percent from last month, thanks to calmer global financial markets and improved investor confidence in the Indonesian economy, which had led to higher foreign capital inflows.
Indonesia’s current account deficit remained at a narrow 0.36 percent of GDP in the January to March period. The central bank estimates that the annual deficit will fall between 0.6 and 1.4 percent of GDP.
Perry described the RPIM policy as “MSME financing plus, plus” as it would allow more non-bank institutions or “agents” to channel loans to MSMEs, would enable more MSMEs to issue securities and would expand productive loan access to include individuals involved with MSMEs.
Economists at the University of Indonesia’s Social and Economic Research Institution (LPEM) said global developments related to the Delta variant outbreak and the decisions of the United States Federal Reserve would be key external factors driving market movements this year.
“Therefore, amid the high uncertainty, we see that BI needs to maintain its interest rate at 3.5 percent while maintaining the exchange rate and the financial sector's stability,” they wrote in an analysis published on Wednesday.
