Fajarasia.co – The Bank Indonesia Board of Governors meeting in May 2022 decided to maintain the BI 7 Day Reverse Repo Rate at 3.5 percent. Likewise, the Deposit Facility interest rate (the placement of Rupiah funds by Bank Indonesia) is 2.75 percent and the Lending Facility interest rate (the provision of Rupiah funds by Bank Indonesia) remains at 4.25 percent.
“This decision is in line with the need to control inflation and maintain exchange rate stability, as well as continue to encourage economic growth, amidst high external pressures related to the Russia-Ukraine geopolitical tensions and the acceleration of normalization of monetary policy in various developed and developing countries,” said Governor of Bank Indonesia Perry Warjiyo in his statement on Tuesday (24/5/2022).
The increase in the interest rate of the US Central Bank The Fed does not necessarily make Bank Indonesia raise its benchmark interest rate. “When measuring monetary policy, don’t just rely on interest rate policy. Because in its monetary policy, Bank Indonesia also normalizes in the form of reducing liquidity and stability of the exchange rate,” said Perry
According to him, the Fed’s policy of raising interest rates will have an effect on the increase in US Treasury yields which will have an impact on domestic government securities (SBN) yields.
“Even then the effect is not one to one, because it depends on the government’s fiscal financing pattern, the preference of domestic investors who can still accept lower yields because they are still profitable, besides that BI is also committed to buying SBN,” explained Perry.
“At present, domestic SBN is also owned by more domestic investors. SBN ownership by foreign investors before Covid 19 was 40 percent, but now it is only about 20 percent and generally foreign investors have a more long-term portfolio investment motive,” he continued.
Bank Indonesia estimates that the Fed will raise interest rates by 250 points in 2022, so that the Fed’s interest rate until the end of the year is estimated at 2.75 percent. Meanwhile, in 2023, BI projects that the Fed will still raise interest rates twice, so that by the end of 2023, the Fed’s interest rate is estimated at 3.25 percent. As a result of the increase in interest rates, the 10-year US Treasury yield is estimated to reach 3.45 percent-3.5 percent.
Governor of Bank Indonesia Perry Warjiyo in his statement today is also optimistic that the stability of the rupiah exchange rate will be maintained because Indonesia’s external resilience is quite strong.
“The stability of the rupiah exchange rate was maintained due to foreign capital inflows, the increasing supply of domestic forex, and positive perceptions of the domestic economic outlook, amidst the ongoing global financial market uncertainty,” concluded Perry.****
