To Protect the Rupiah, BI Raises Reference Interest Rate to 6% in October 2023

Bank Indonesia (BI) has raised its benchmark interest rate, the BI 7-Day Reverse Repo Rate (BI7DRR), by 25 basis points (bps) to 6% in October 2023. This decision was made during the BI Board of Governors meeting on October 18-19, 2023.

Consequently, the deposit facility interest rate also increased by 25 bps to 5.25%, and the lending facility interest rate rose by 25 bps to 6.75%.

"This increase aims to strengthen the policy of stabilizing the rupiah exchange rate from the impact of increasing global uncertainty," BI stated in its official statement on Thursday (10/19/2023), explaining the reason for the interest rate hike.

In addition to countering the weakening rupiah, this interest rate hike is a pre-emptive and forward-looking measure to mitigate its impact on import price inflation, ensuring inflation remains within the target of 3.0±1% in 2023 and 2.5±1% in 2024.

BI noted that the global economy is slowing down, and uncertainty is increasing. Global economic growth is predicted to weaken, accompanied by a widening divergence in growth between countries.

"Economic growth in 2023 is projected to be 2.9% and slow to 2.8% in 2024 with a lower risk tendency," said BI.

BI stated that the US economy in 2023 is still growing strongly, mainly supported by household consumption and domestically oriented service sectors, while China is slowing down due to weakening consumption and declining performance in the property sector.

Increased geopolitical tensions, particularly in the Middle East conflict zone, are driving up energy and food prices, resulting in persistently high global inflation.

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Meanwhile, BI views Indonesia's economy as projected to remain strong and resilient to the impact of global spillovers.

BI explained that in the third quarter of 2023, economic growth was supported by private consumption, including consumption by the younger generation, which increased in line with increased consumption in the service sector and still high consumer confidence.

In terms of investment, growth is considered good, in line with the completion of National Strategic Projects (PSN). However, on the export side, real growth declined due to weakening demand from major trading partners, especially China, and lower commodity prices. Meanwhile, service exports continued to grow strongly in line with the increase in the number of foreign tourists.

"The continued improvement in the economy in 2024 is mainly driven by domestic demand in line with the increase in salaries for Civil Servants (ASN), the holding of general elections, and the development of the new capital city (IKN)," said BI.

(Read also: [BI Kembali Tahan Suku Bunga Acuan 5,75% pada September 2023](https://databoks.katadata.co.id/datapublish/2023/09/22/bi-kembali-tahan-suku-bunga-acuan-575-pada-september-2023))