Bank Indonesia Raises Benchmark Interest Rate to 4.25% in September 2022

The Bank Indonesia (BI) Board of Governors meeting on September 21-22, 2022, decided to raise the BI 7-Day Reverse Repo Rate (BI7DRR) by 50 bps to 4.25%.

The Deposit Facility interest rate was also raised by 50 bps to 3.50%, and the Lending Facility interest rate by 50 bps to 5.00%.

According to BI, this interest rate hike is a front-loaded, pre-emptive, and forward-looking measure to lower inflation expectations and ensure core inflation returns to the target of 3.0 ± 1% in the second half of 2023. In addition, the increase in the benchmark interest rate aims to strengthen the Rupiah exchange rate stabilization policy, aligning it with its fundamental value amidst high global financial market uncertainty and persistently strong domestic economic demand.

Bank Indonesia also cited the reason for this interest rate hike as maintaining stability and the momentum of economic recovery by strengthening monetary operations through an increase in the interest rate structure in the money market in line with the increase in the BI7DRR to lower inflation expectations and ensure core inflation returns to its target.

Furthermore, BI is strengthening Rupiah exchange rate stabilization as part of inflation control through interventions in the foreign exchange market, both through spot transactions, Domestic Non-Deliverable Forwards (DNDF), and the purchase/sale of Government Securities (SBN) in the secondary market.

In addition, BI will continue its policy of transparency in the base lending rate (SBDK) with a deeper focus on bank profitability (Appendix). It will also encourage the acceleration and expansion of the implementation of digital payment digitization in regions by leveraging the momentum of the implementation and determination of winners of the Acceleration and Expansion of Regional Digitization (P2DD) Championship. And finally, it will encourage the acceleration of achieving 15 million QRIS users and increased use of BI-FAST in payment transactions.