Bank Indonesia Holds Reference Interest Rate at 5.75% in September 2023

Bank Indonesia (BI) maintained its benchmark interest rate, the BI-7 Day Reverse Repo Rate (BI7DRR), at 5.75% during its Governor's Board Meeting (RDG) on September 20-21, 2023.

The deposit facility interest rate remained at 5%, and the lending facility interest rate remained at 6.5%.

"This decision (to maintain the benchmark interest rate) is consistent with monetary policy to ensure inflation remains controlled within the target range of 3% plus minus 1% in 2023 and 2.5% plus minus 1% in 2024," Bank Indonesia stated in a press release on Thursday (September 21, 2023).

According to BI, monetary policy remains focused on controlling the stability of the Rupiah exchange rate, as a precautionary measure against the spillover effects of global financial market uncertainty.

"Meanwhile, a loose macroprudential policy continues to be implemented to encourage bank financing for businesses through macroprudential liquidity incentive policies focusing on downstreaming, housing, tourism, and inclusive and green financing," BI said.

BI also stated it will continue to promote the digitalization of payment systems to strengthen digital financial inclusion. Furthermore, BI will continue to strengthen the mix of monetary, macroprudential, and payment system policies to maintain stability and support sustainable economic growth.

BI's policy mix includes:

* Stabilizing the Rupiah exchange rate through intervention in the foreign exchange market
* Implementation of the issuance of Bank Indonesia Rupiah Securities (SRBI)
* Deepening the policy of transparency of the basic credit interest rate (SBDK) with a focus on UMKM credit interest rates
* Acceleration of digitalization of payment systems through the expansion of QRIS acceptance
* Expanding cooperation with several central banks for the use of Local Currency Transactions (LCT).

BI estimates that global economic uncertainty remains high. However, the central bank projects global economic growth to remain at 2.7% in 2023, with a tendency towards slowing Chinese economic growth and strengthening US economic growth.

Meanwhile, Indonesia's economic growth is expected to remain strong, supported by domestic demand. According to BI, household consumption is projected to grow strongly in line with high public confidence, including among young people who are increasing their consumption of services.

Furthermore, according to BI, investment performance remains good in line with the continuation of the completion of National Strategic Projects (PSN). On the other hand, exports are slowing due to weakening global demand and falling commodity prices, amidst fairly strong service exports.

"Bank Indonesia projects 2023 economic growth to be within the projected range of 4.5-5.3%," they said.

Previously, BI also held the interest rate at 5.75% in August 2023. BI last raised interest rates in January 2023 by 25 basis points from 5.5% to 5.75%. As a result, this month marks the ninth consecutive month that BI has maintained its interest rate.