BI Raises Interest Rate to 4.75%, Widening Rupiah-Dollar Interest Rate Differential

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Viva Budy Kusnandar 20/10/2022 18:30 WIB

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Bank Indonesia raised its benchmark interest rate to 4.75% in October 2022. The interest rate differential between the rupiah and the dollar widened again as a result.

Movement of the BI7DRR Interest Rate and The Fed's Interest Rate (Jan-Oct 2022)

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BI Raises Interest Rate to 4.75%, Widening Rupiah-Dollar Interest Rate Differential

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Movement of the BI7DRR Interest Rate and The Fed's Interest Rate (Jan-Oct 2022)

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Bank Indonesia's (BI) Board of Governors meeting decided to raise the BI 7-Day Reverse Repo Rate (BI7DRR) benchmark interest rate by 50 basis points (bps) to 4.75% on Thursday, October 20, 2022.

Cumulatively, BI has raised its benchmark interest rate by 125 bps in the last three months. This increase widened the net interest rate differential between the rupiah and the US dollar to 150 bps, from a previous difference of 100 bps.

BI also raised the deposit facility interest rate by 50 bps to 4%, and the lending facility interest rate by 50 bps to 5.5%.

According to BI Governor Perry Warjiyo, this decision is a front-loaded, pre-emptive, and forward-looking measure to lower currently high inflation expectations and ensure core inflation falls to the target of 3.0% +/-1% in the first half of 2023.

"And to strengthen the policy of stabilizing the rupiah exchange rate in line with its fundamental value due to the strengthening US dollar and high uncertainty in global financial markets amid persistently strong domestic economic demand," Perry stated in his official release.

BI is also continuing to strengthen its policy mix response to maintain stability and momentum in the recovery, including by:

* Strengthening monetary operations through increased interest rate structures in the money market.
* Strengthening rupiah exchange rate stability by remaining in the market as an effort to control inflation.
* Continuing the purchase/sale of SBNs in the secondary market to strengthen the transmission of the BI7DRR increase.
* Continuing the implementation of accommodative macroprudential policies to encourage the channeling of bank credit/financing to the business world.

"Global economic growth is slowing, accompanied by high inflationary pressures and increasing uncertainty in global financial markets. After improving this year, global economic growth in 2023 is expected to be lower than previously estimated. It is even accompanied by the risk of recession in several countries," Perry stated.

Previously, in September 2022, Indonesia experienced monthly inflation of 1.17% (month-on-month/mom) or 5.95% year-on-year (year-on-year/yoy). Core inflation was 0.3% (mom) or 3.21% (yoy).

The upward trend in US central bank interest rates throughout 2022 has triggered a strengthening of the US dollar against world currencies. As a result, the rupiah has also weakened.

On Thursday, October 20, 2022, the rupiah exchange rate closed at Rp15,579 per US dollar. This was a weakening of Rp88 per US dollar (0.56%) from the previous day's closing.

Editor : Adi Ahdiat

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."

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BI Raises Interest Rate to 4.75%, Widening Rupiah-Dollar Interest Rate Differential

BI Raises Interest Rate to 4.75%, Widening Rupiah-Dollar Interest Rate Differential

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BI Raises Interest Rate to 4.75%, Widening Rupiah-Dollar Interest Rate Differential

BI Raises Interest Rate to 4.75%, Widening Rupiah-Dollar Interest Rate Differential

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