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

Bank Indonesia (BI) maintains its benchmark interest rate, or BI 7-Day Reverse Repo Rate (BI7DRR), at 5.75%. This decision was reached during the Board of Governors meeting on August 23-24, 2023.

The deposit facility interest rate is set at 5%, and the lending facility interest rate at 6.50%.

In its official statement, BI stated that the decision to maintain the BI7DRR, unchanged since January 2023, is consistent with its monetary policy stance to ensure inflation remains controlled within the range of 3.0±1% for the remainder of 2023 and 2.5±1% in 2024.

"The focus of monetary policy is directed towards strengthening rupiah exchange rate stability to mitigate the spillover effects of global financial market uncertainty," BI wrote on its website on Thursday (August 24, 2023).

Regarding global conditions, BI noted that the shift in the composition of global economic growth in 2023 is strengthening, although overall annual global economic growth remains at the previous forecast of 2.7%.

BI cited the conditions in several countries as examples. China has lower economic growth due to weakening economic sentiment, high household debt, reduced consumption, and a decline in property performance impacting investment.

The European economy is also weakening, triggered by the escalating geopolitical tensions between Russia and Ukraine. On the other hand, US economic growth is better than initially forecast, driven by improved consumption supported by wage increases and high utilization of excess savings.

Meanwhile, inflationary pressure in developed countries remains high, influenced by a strong economy and a tight labor market, while inflation in developing countries has decreased. This is predicted to drive further increases in monetary policy interest rates in developed countries, including the US Federal Funds Rate (FFR).

These developments, BI said, are increasing global financial market uncertainty and making capital flows to developing countries more selective.

"Exchange rate pressure in developing countries is increasing, requiring a stronger policy response to mitigate these global spillover risks, including in Indonesia," BI stated.

BI added that to support domestic economic growth, a loose macroprudential policy continues to be implemented to strengthen the effectiveness of providing liquidity incentives to banks to encourage credit or financing, focusing on downstream industries, housing, tourism, and inclusive and green financing.

BI also mentioned that it continues to encourage the acceleration of digitalization of payment systems to expand digital economic and financial inclusion.

"The strengthening of Bank Indonesia's monetary, macroprudential, and payment system policy mix continues to be directed towards maintaining stability and supporting sustainable economic growth," BI stated.