Confidence in 5% Growth, Indonesia Takes Big Step for Three Consecutive Months

Base Interest Rate Raised from 4.75% to 5.25%
Increased by 1.75 Percentage Points Over 4 Months

[Asia Economy Reporter Minji Lee] The Bank of Indonesia (BI) raised its benchmark interest rate by 0.5 percentage points, continuing its 'big step' approach for the third consecutive month. This measure aims to stabilize prices and prevent capital outflows.

On the 17th, BI increased the 7-day reverse repurchase agreement (RRP) rate, which serves as the benchmark interest rate, from 4.75% to 5.25%, a 0.5 percentage point hike. After raising the rate from 3.5% to 3.75% in August, BI has increased the rate by 0.5 percentage points each month for three consecutive months starting in September. On the same day, BI also raised other policy rates by 0.5 percentage points.

Regarding this, BI Governor Perry Warjiyo explained that this is a preemptive measure to lower expected inflation and prevent capital outflows. He mentioned that the core inflation rate would be brought within the target range in the first half of 2023. Indonesia's inflation rate last month recorded an annual 5.71%. Although it fell by 0.24 percentage points compared to September, it still does not meet BI's target range of 2?4%.

This move also aims to prevent capital outflows caused by the rapid interest rate hikes in the United States. The value of the Indonesian Rupiah against the US dollar has fallen about 10% since the beginning of this year and about 3% in this quarter alone.

Unlike other countries, Indonesia's robust economic growth provides a background for an active monetary tightening policy. Indonesia's third-quarter economic growth rate was 5.72% annually, maintaining a growth rate above 5% for four consecutive quarters.

This content was produced with the assistance of AI translation services.