Surprise! Bank Indonesia Raises its Benchmark Interest Rate to 3.7% in August 2022

Bank Indonesia (BI) announced the unexpected results of its Board of Governors (RDG) meeting on August 22-23, 2022. The RDG meeting decided to raise the benchmark interest rate, or BI 7-Day Reverse Repo Rate (BI7DRR), by 25 bps to 3.75%.

The Deposit Facility interest rate was also raised by 25 bps to 3.00%, and the Lending Facility interest rate by 25 bps to 4.50%.

BI Governor Perry Warjiyo, in a press conference, stated that the interest rate hike was a pre-emptive and forward-looking measure to mitigate the risk of increasing core inflation and inflationary expectations due to rising prices of non-subsidized fuel (BBM) and volatile food inflation. Furthermore, the interest rate hike was implemented to strengthen the policy of stabilizing the Rupiah exchange rate in line with its fundamental value, amidst high global financial market uncertainty and increasingly strong domestic economic growth.

BI is also continuing to strengthen its policy mix response to maintain stability and strengthen recovery by strengthening monetary operations through an increase in the interest rate structure in the money market in line with the increase in the BI 7-Day Reverse Repo Rate (BI7DRR) to mitigate the risk of rising core inflation and inflationary expectations.

Furthermore, BI is strengthening Rupiah exchange rate stabilization as part of inflation control with interventions in the foreign exchange market, both through spot transactions, Domestic Non-Deliverable Forwards (DNDF), and the purchase/sale of SBNs in the secondary market.