Bank Indonesia may still raise its interest rate this year.


Jakarta (ANTARA News) – Bank Indonesia Governor Perry Warjiyo said Central Bank may have to raise again its benchmark interest rate this year after raising the interest rate by 25 basis point to 4.75 percent on Wednesday.

“We continue to calibrate developments domestically and globally to make use of room still open for an increase in benchmark interest rate,” Perry told reporters after a extra meeting this month of the Board of Governors of the Central Bank on Wednesday .

In the first extra monthly meeting since 2013 of the Board of Governors, the Central Bank raised its “7-Day Reveres Repo Rate” by 25 basis points to 4.75 percent.

Only two weeks earlier the Central Bank raised its benchmark interest rate from 4.25 percent to 4.5 percent in a bid to prop up weak rupiah which has dropped to below its fundamental value.

Rupiah and other currencies of developing markets have been under pressure of the U.S. Central Bank raising its Fund Rate. The Fed is yet to raise its Fund Rate two more times this year.

Rupiah has sunk deep crossing the psychological level of 14,000 per dollar toward the end of May or a depreciation of 3.9-4 percent year to date.

The monetary policy tightening adopted by the Indonesian Central Bank toward the end of May this year is to cushion the impact of the pressure of capital reversal expected by the market players if the Fed follows through with its plan to raise its fund rate to 1.75 percent-2 percent on June 13 , 2018.

Perry, who has marked himself with pro stability and pro growth monetary policy said that he wants to apply a monetary policy which would forestall pressure that could disrupt domestic economic stability.

“This constitutes a preemptive and ahead-of-the curve policy and front loading to respond to external risks and pressure,” he said.

Perry said in the rest of the year, the stability of the domestic financial market may remain under the shadow of the threat of capital outflows.

The source of the threat is the increases in the fund rate of The Fed 3-4 times this year , the U.S. fiscal deficit widening that triggered an increase in the yield of U.S. state bonds and the global geopolitical dynamics.

“Therefore, the monetary policy of Bank Indonesia has to change its direction from neutral to tight bias,” he said.

Meanwhile the development of the domestic economy has continued to run well as indicated by the inflation rate of around the target of 3.6 percent, he said.

The current account deficit is also estimated to remain below 2.5 percent of the GDP, he added.

The Central Bank also is preparing relaxation of macro prudential policy in housing financing.

Deputy Governor of The Central Bank Erwin Rijanto said the increase in benchmark interest rate will have impact on bank lending rate, but the increase in the lending rates would not come right away.

Erwin said Bank Indonesia is still confident bank credit will grow 10-12 percent this year (yoy).

Source: ANTARA News