Bank Indonesia Maintains Reference Interest Rate at 3.5%

The Bank Indonesia (BI) Governor's Board Meeting (RDG) held on July 20-21, 2022, decided to maintain the BI 7-Day Reserve Repo Rate (BI7DRR) benchmark interest rate at 3.5%.

BI has maintained the BI7DRR benchmark interest rate at 3.5% for the 17th time since April last year. This is the lowest level since its implementation in August 2016, as shown in the graph.

Bank Indonesia (BI) also maintained the Deposit Facility interest rate at 2.75% and the Lending Facility interest rate at 4.25%.

In its release, BI stated that this decision is consistent with the forecast of core inflation remaining under control amidst the risk of the global economic slowdown impacting domestic economic growth.

"BI continues to be wary of the risk of rising inflation expectations and core inflation going forward, and is strengthening the necessary monetary policy mix response through rupiah exchange rate stabilization, strengthening monetary operations, and interest rates," as written in the press release issued on Thursday (21/7/2022).

According to BI, global inflationary pressures continue to increase due to high commodity prices resulting from the ongoing Russia-Ukraine geopolitical tensions.

Domestic Economic Conditions Remain Stable

The domestic economy in Q2 2022 is expected to continue its improvement. This is supported by increased consumption and non-building investment, and export performance higher than initial projections.

The current account in Q2 2022 is projected to record a surplus, higher than the surplus achieved in the previous quarter. This is mainly supported by the increase in the non-oil and gas trade balance surplus, in line with the still high global commodity prices.

The exchange rate on July 20, 2022 depreciated by 0.60% (ptp) compared to the end of June 2022, but with controlled volatility. With this development, the Rupiah exchange rate until July 20, 2022 depreciated by 4.90% (ytd) compared to the end of 2021 level, relatively better than the depreciation of several other developing countries' currencies, such as Malaysia (6.41%), India (7.07%), and Thailand (8.88%).

Annually, inflation in June 2022 was recorded at 4.35% (yoy), higher than inflation in the previous month at 3.55% (yoy). Core inflation remained controlled at 2.63% (yoy), supported by the consistency of Bank Indonesia's policy in maintaining inflation expectations.