Rupiah Pressure Eases, BI Holds Reference Interest Rate at 5.25%

The Bank Indonesia Board of Governors (RDG) meeting held on July 18-19, 2018, decided to maintain the BI 7-day Reserve Repo Rate at 5.25%. This decision aligns with Bank Indonesia's target of maintaining the attractiveness of the domestic financial market amid persistent uncertainty in the global financial market. The central bank's RDG also maintained the Deposit Facility rate at 4.5% and the Lending Facility rate at 6%, effective July 19.

The easing of pressure on the Rupiah is one of the reasons the central bank maintained its benchmark interest rate at 5.25%. For information, the Rupiah exchange rate has been above Rp 14,000/US dollar since June 21, 2018. The 100 basis points (bps) increase in the BI 7-day Rate and the easing of macroprudential policies are believed to increase liquidity and banking intermediation for economic growth. The government and relevant authorities are also maintaining stability and implementing measures to reduce the current account deficit and trade transactions deficit.

As is known, Bank Indonesia has raised its benchmark interest rate three times in response to the fluctuating value of the Rupiah against the US dollar, triggered by the outflow of foreign funds from the domestic financial market. The first increase was on May 17, the second on May 30, each by 25 bps, and the third on June 29, 2018, by 50 bps.