Inflation and Rupiah Remain Stable, BI Holds Reference Interest Rate at 5.75% in March 2023

Bank Indonesia (BI) has decided to hold the benchmark interest rate, the BI 7-Day Reverse Repo Rate (BI7DRR), at 5.75% in March 2023. This is the second consecutive month that the central bank has maintained the benchmark interest rate.

BI made this decision because Indonesia's inflation rate remains under control and the rupiah exchange rate is stable amidst uncertain global financial conditions.

"The Bank Indonesia Board of Governors' meeting on March 15 and 16, 2023, decided to maintain the BI7DRR at 5.75%," said BI Governor Perry Warjiyo, as quoted from a press release on Thursday (16/3/2023).

The deposit facility interest rate also remains at 5%, and the lending facility interest rate remains at 6.5%.

Perry is optimistic that the 5.75% benchmark interest rate is sufficient to ensure that core inflation remains within the range of 3% plus or minus 1% in the first half of 2023.

Furthermore, according to Perry, the rupiah exchange rate remains stable amid fluctuations in the global financial market. From January 1 to March 15, 2023, BI recorded a 1.32% year-to-date (ytd) strengthening of the rupiah against the US dollar.

"Bank Indonesia predicts that the stability of the rupiah exchange rate will remain maintained in line with the prospects of high domestic economic growth, low inflation, a current account surplus, and attractive domestic financial asset yields," said Perry.

On the other hand, the central bank acknowledges that uncertainty in the global financial market is increasing. One of the causes is the closure of three banks in the US.

Nevertheless, Perry is optimistic that the prospects for national economic growth remain strong. BI estimates that Indonesia's economic growth will reach the upper range of 4.5% to 5.3%.

Domestically, Indonesia's economic growth remains strong, driven by increased domestic demand and exports. "Household consumption is expected to strengthen further in line with increased mobility across regions, increased ceramic sales, and improved consumer confidence," said Perry.