BI interest rate rises by another 50bps, what are the impacts on the Indonesian economy?

GIACARTA, KOMPAS.com – Bank Indonesia (BI) increased the BI 7-day Reverse Repo (DRRR) rate o interest rate the benchmark was 50 basis points (bps) at 4.75%. Ascension Day BI standard interest rate This will have a positive or negative impact on the national economy.

Center of Economic and Law Studies (Celios) director Bhima Yudhistira said rising interest rates could strengthen the resilience of the rupee’s exchange rate against the continued strengthening of the US dollar.

On the other hand, the negative effects will be felt by traders and banks because an increase in interest rates triggers an increase in interest on loans.

Read also: The standard BI interest rate has risen again, now at 4.75%.

“Interest rate Bank lending has started to rise, so corporate actors need to devise strategies for paying interest and working capital loan installments, ”he told Kompas.com on Thursday (10/20/2022).

BI’s benchmark interest rate increase of 50 bps continued the increase in interest rates in August 2022 by 25 bps and in September 2022 by 50 bps. So the total interest rate of BI has increased by 125 basis points so far this year.

According to Bhima, the continued rise in interest rates will result in a decrease in public spending. In particular, auto and home sales will slow as interest rates on loans also rise in line with rising BI interest rates.

“This is what lowers core inflation, because request (question) weakened, “he added.

He believes that the main task of the government is control cost-driven inflation or an increase in inflation due to the increase in the production and operating costs of the company.

Such as rising raw material costs due to rising raw material prices or rising freight rates due to rising fuel oil prices (BBM).

Read also: BI governor reveals benchmark interest rate policy, will it rise?

“The main task is to control cost-driven inflation or the supply side through government intervention in the food and energy sector. As long as the cost pressure is still increasing, the benchmark interest rate does not necessarily reduce the ‘general inflation, “Bhima explained.

Earlier, BI Governor Perry Warjiyo said the decision to raise interest rates by 50 basis points was in anticipation of a reduction in inflation expectations. Furthermore, to ensure that core inflation returns to the target of 3 percent plus minus 1 percent in the second half of 2023.

Furthermore, this decision also aims to strengthen the rupee’s exchange rate stabilization policy to be in line with its fundamental value due to the strengthening of the US dollar and high uncertainty in global financial markets due to increased demand. . economy home that stays strong.

“The decision to raise the interest rate as a step front loaded, quoteAnd far-sighted to lower inflation expectations that are currently too high or beyond shooting“Perry said during a press conference on Thursday (10/20/2022).

Read also: BI should raise benchmark interest rates again, that’s why

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