Local newswires, including Tempo, have been reporting on the decision by Bank Indonesia’s Board of Governors to raise the benchmark interest rate or BI 7-Day Reverse Repo Rate (BI7DRR) by 25-points to 3.75-percent from the previous 3.5-percent.
“The decision to increase the policy rate is a preventive and forward-looking step to mitigate the risk of rising core inflation,” said Bank Indonesia Governor Perry Warjiyo in a written statement on August 23, say Tempo.
The Indonesian central bank also set the Deposit Facility interest rate at 3-percent and the Lending Facility interest rate at 4.5-percent, raising 25-basis points each. According to Perry, an increase in the benchmark interest rate is due to the increase in the price of fuel or non-subsidized fuel and volatile food inflation.
“Strengthening the rupiah exchange rate stabilization policy so that it is in line with its fundamental value in the face of high uncertainty in global financial markets amid the increasingly strong domestic economic growth,” Perry added.
Coordination with the government and agencies through the Inflation Control Team (TPIP and TPID) will also be strengthened to manage inflationary pressures from the supply side and boost production. This is deemed to maintain macroeconomic stabilization while still supporting the national economic recovery process, and coordinating monetary and fiscal policies.