BI Becomes More Aggressive as Pressure Grows

According to the Governor of Bank Indonesia Perry Warjiyo, it was necessary to increase the benchmark interest rate in an effort to bring back the inflation within the 2-4 percent target in the third quarter of 2023.

KOMPAS/ELSA EMIRIA LEBA

Bank Indonesia Logo

JAKARTA, KOMPAS — The Board of Governors of Bank Indonesia decided to raise the benchmark interest rate by 50 basis points to 4.25 percent during its monthly meeting on Thursday. The aggressive increase in the benchmark rate was made amid a growing internal pressure due to the increase in inflation rate and external pressure caused by the increase in the United States central bank’s reference rate.

Speaking to the press following the Board of Governors' Meeting (RDG), Bank Indonesia Governor Perry Warjiyo explained that the latest rate increase was part of the central bank’s “front-loaded, pre-emptive and forward-looking” policies. Front loaded is a strategy to increase interest rates by a large portion at the beginning of a series of interest rate hikes within a certain period. This is also a pre-emptive step, namely risk mitigation to achieve future targets (forward looking).