Jakarta, CNBC Indonesia – Bank Indonesia (BI) announced the results of the Board of Governors’ Meeting (RDG) for the period of May 2022. The results are as expected, the benchmark interest rate has not been tampered with.
“Bank Board of Governors Meeting Indonesian on 23-24 April 2022 decide to maintain BI 7-Day Reverse Repo Rate at 3.5%, interest rate Deposit Facility of 2.75%, and the interest rate Lending Facility by 4.25%,” said Perry Warjiyo, Governor of BI, in a virtual press conference.
Thus, the BI 7 Day Reverse Repo Rate has not changed for 15 months. The benchmark interest rate of 3.5% is the lowest in Indonesia’s history.
Danareksa Research Institute economist Muhammad Ikbal Iskandar said BI would choose to hold its benchmark interest rate this month despite inflation already soaring in April. The Central Statistics Agency (BPS) noted that Indonesia’s inflation skyrocketed 0.95% (month to month/mtm) in April 2022, which is the highest level since January 2017.
Annually (year on year/yoy), Indonesia’s inflation shot up to 3.47% or the highest since August 2019. The annual inflation is getting closer to the upper limit of BI’s target range of 2-4%.
“We expect BI to maintain interest rates in May but rising inflation could encourage BI to raise interest rates faster than expected,” said Ikbal, in a report. Monthly Economic Report and Outlook May 2022.
DBS economist Radhika Rao expects BI to maintain its benchmark interest rate this month before switching to hawkish in June or July.
“BI is likely to be hawkish in June or July due to high inflation. Core inflation that continues to creep up has put pressure on rupiah-denominated assets. We estimate BI will raise interest rates by 75 bps this year,” Radhika said in the report Indonesia: Fuel Prices, Subsidies, and Inflation – Balancing Act.
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