Economy Improves, BI Holds Reference Interest Rate Hike in February 2023

Bank Indonesia (BI) has decided to maintain its benchmark interest rate at 5.75% in February 2023, following six consecutive months of increases totaling 225 basis points (bps).

The predicted more conducive global and domestic economic conditions have led BI to be optimistic that the current interest rate level is still sufficient to control future inflationary pressures.

"The Bank Indonesia Board of Governors meeting on February 15-16, 2023, decided to maintain the BI 7-Day Reverse Repo Rate (BI7DRR) at 5.75%," said BI Governor Perry Warjiyo, as quoted by Katadata.co.id on Thursday (February 16, 2023).

The interest rate for deposit facilities has also been kept at 5%. Similarly, the lending facility interest rate remains at 6.5%.

According to Perry, this halt in interest rate hikes is consistent with BI's monetary policy stance, which is pre-emptive and forward-looking in maintaining the continued decline in inflation expectations.

"BI is confident that the BI7DRR of 5.75% is sufficient to ensure core inflation remains within the range of 3% plus or minus 1% in the first half of 2023, and that the Consumer Price Index (CPI) returns to the target of 3% plus or minus 1% in the second half of 2023," said Perry.

Perry also ensured that the policy to stabilize the Rupiah exchange rate to control imported inflation will continue to be strengthened through the management of export foreign exchange through the implementation of monetary operations for export proceeds (DHE) in accordance with market mechanisms.

Furthermore, according to Perry, BI will also continue to strengthen the policy mix response to maintain stability and drive economic growth through several policies, including:

1. Strengthening monetary operations to improve the effectiveness of monetary policy transmission;
2. Strengthening Rupiah exchange rate stabilization as part of efforts to control inflation, especially imported inflation, through intervention in the foreign exchange market with spot transactions, Domestic Non-Deliverable Forward (DNDF), and the purchase/sale of State Bonds (SBN) in the secondary market;
3. Continuing twist operations through the sale of SBNs in the secondary market for short tenors to increase the attractiveness of SBN yields, especially for the inflow of foreign portfolio investors, in order to strengthen Rupiah exchange rate stabilization;
4. Strengthening the management of export proceeds;
5. Continuing the policy of transparency of the base lending rate (SBDK);
6. Strengthening the policy of digitalization of payment systems;
7. Strengthening international cooperation by expanding cooperation with central banks and other partner country authorities.