Indonesia’s central bank surprised economists by raising its benchmark rate in order to maintain the stability of the rupiah and combat inflation. Bank Indonesia increased its benchmark seven-day reverse repo rate by 25 basis points to 6.0%, a decision that was not anticipated by the six economists surveyed by The Wall Street Journal who predicted rates would remain unchanged.
Taking Preemptive Measures
Bank Indonesia Governor Perry Warjiyo explained in a press conference that the move was a proactive measure aimed at mitigating the impact of imported inflation. The central bank is determined to keep inflation within its target ranges of 2.0%-4.0% this year and 1.5%-3.5% in the following year. In line with this, the overnight deposit facility rate and lending facility rate were also increased by 25 basis points each to 5.25% and 6.75%, respectively.
Dollar Strength Puts Pressure on Rupiah
Bank Indonesia stated that the recent strength of the U.S. dollar has affected various currencies, including the rupiah, which has depreciated by 1.03% against the greenback this year. The central bank intervened to prevent further decline of the rupiah, emphasizing its commitment to stabilizing the exchange rate.
Positive Outlook for Indonesian Economy
Despite global uncertainties and inflationary challenges, the Indonesian economy is expected to sustain growth driven by private consumption, service-sector expansion, and increased investment. Bank Indonesia forecasts economic growth between 4.5% and 5.3% in 2023.
These measures demonstrate Indonesia’s commitment to fostering economic stability and safeguarding against potential risks.