Rising Pressure, BI Raises 7-Day Repo Rate by 25 bps

The increasing uncertainty in the global financial market, coupled with the fall of the Turkish lira and the widening current account and trade balance deficits in Indonesia, prompted Bank Indonesia (BI) to once again raise its benchmark interest rate. As is known, the lira experienced a significant depreciation last weekend; its value has shrunk by more than 37% against the US dollar in 2018. Similarly, the Indonesian rupiah has weakened by more than 7% against the US dollar this year.

The BI Board of Governors meeting held on August 14-15, 2018, decided to raise the BI 7-day Reserve Repo Rate by 25 bps to 5.5%. This is the fourth increase this year and also the highest level since August 2016.

According to BI Executive Director, Agusman, the decision to raise the benchmark interest rate reflects the central bank's consistency in maintaining the attractiveness of the domestic financial market and controlling the current account deficit within safe limits. "Going forward, BI will continue to monitor domestic and global economic developments and prospects to strengthen policy mix responses in maintaining macroeconomic and financial system stability," he said.

(Read Databoks: Not Only the Rupiah, World Currencies Also Weaken Against the US Dollar)