Jakarta, CNBC Indonesia – The trend of increasing global interest rates is currently taking place following the steps of the United States (US) central bank. However, a number of central banks chose to maintain, even cut interest rates to boost economic growth.
There are at least 10 central banks that have so far kept their benchmark interest rates. Among them are Japan, China, Thailand, to Russia, and Indonesia.
Dozens of central banks that are members of central banks in the European Union, such as Germany and France, have also not raised their benchmark interest rate by 0% since March 2016. However, the European Central Bank (ECB) has announced that it will raise interest rates starting next July.
A number of reasons encourage the central bank to maintain interest rates. But the most common reason is to boost growth.
A slightly different reason came from Turkey. The inflation rate of the Crescent Country is actually very high, namely 21.31% (year on year / yoy) in November 2021 to 73.5% in May this year. However, the central bank kept their benchmark interest rate at the level of 14%.
Turkey’s inflation soared as the lira fell. However, amid the spike in inflation, Turkey’s central bank (Turkiye Cumhuriyet Merkez Bankasi/TCMB) actually lowered its benchmark interest rate in December 2021 after President Recep Tayyip Erdogan asked them to cut interest rates.
The benchmark TCMB interest rate was cut in September, October, November and December 2021 from 19% to 14%. Erdogan is a staunch opponent of rate hikes. He has even fired three central bank governors since 2019 because they were considered less accommodating.
Meanwhile in Russia, inflation skyrocketed from 9.2% in February 2022 to 17.1% in May 2022. On the contrary, their growth weakened.
The World Bank estimates that the Red Bear Country’s economy will contract by 8.9%, in contrast to growth of 4.7% last year.
In the midst of a spike in inflation, Russia’s central bank on June 10 cut interest rates by 150 bps to 9.5%. This step was taken to ignite the economic growth of those who fell as a result of the war.
A number of embargoes, logistical disruptions and stalled business activities due to the war are expected to have a major impact on the Russian economy.
“Weakening economic activity occurred both on the supply and supply side. Surveys show that many companies are improving distribution and production,” the Russian central bank said in a statement.
Boosting growth is also the basis for Thailand’s central bank (BOT) to maintain their benchmark interest rate at the level of 0.50%. The lowest benchmark interest rate of all time has lasted since May 2020 or more than two years.
The COVID-19 pandemic devastated the Thai economy because they depended on tourism for their economic foundations.
Thailand’s economy grew 1.1 percent in the first quarter of this year, down from 1.8 percent in the previous quarter. Lockdown in China and the Russo-Ukrainian war again threaten the economy of the White Elephant country.
Thailand’s inflation actually accelerated to a high of 7.1% in May 2022, the highest since July 2008. However, it was not enough for Thailand to raise interest rates because the BOT has always insisted that growth is a priority.
Japan’s central bank (BOJ) is also sticking with its ultra-low interest rates. The BOJ meeting on June 19 decided to keep their benchmark interest rate at minus 0.1%. The benchmark interest rate has been around since 2016.
Japan chose to stick with low interest rates in order to boost its economy. The Rising Sun Economy contracted 0.1% in Q1 (annualized qtq).
Meanwhile, Japan’s inflation increased by 2.5% (yoy) in April 2022 which was the highest record since October 2014.
Japan doesn’t even care if their decision will make the yen fall. The Japanese yen fell to a 24-year low on Monday last week, in part because of the BOJ’s commitment to maintaining ultra-low interest rates.
The BOJ’s decision has been supported by Prime Minister Fumio Kishida.
“With the current situation, the status quo in monetary policy must be maintained,” said Kishida during a debate with party leaders, as quoted from ReutersTuesday (21/6/2022).
The Central Bank of China (PBOC) maintains the benchmark lending rate, amid the aggressiveness of central banks in various countries in raising interest rates. The one-year loan interest rate was maintained at 3.7%.
Bank Indonesia (BI) maintained the BI 7-Day Reverse Repo Rate (BI7DRR) at 3.5% this month. The Board of Governors’ Meeting (RDG) of Bank Indonesia on 22-23 June 2022 also maintained the Deposit Facility interest rate at 2.75% and the Lending Facility interest rate at 4.25%.
BI has maintained the benchmark interest rate at around 3.5% since February 2021 or has held it for the last 16 months. The 3.5% level is the lowest benchmark interest rate in Indonesia’s history.
BI Governor Perry Warjiyo said BI’s decision to hold the benchmark interest rate was in line with the need to control inflation without leaving the momentum for economic growth.
In contrast to the announcement of the results of the RDG in previous months, Perry conveyed the possibility of further normalization of monetary policy that would be adjusted to the risk of inflationary pressures.
“BI continues to monitor the risk of future inflationary pressures, including inflation expectations and their impact on core inflation, and will take further steps to normalize monetary policy in accordance with developing data and conditions,” Perry said.
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Again, BI Holds Reference Interest at 3.5%! It’s been over a year …
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