JAKARTA (TheInsiderStories)–Bank Indonesia raised its benchmark seven-day reverse repo rate by 25 basis points to 5.5 percent amid global and domestic economic pressure, said BI’s governor Perry Warjiyo said on Wednesday (15/8).
The Indonesian Central Bank also raised its deposit facility rate by 25 basis points to 4.75 percent, and its lending facility rate by 25 basis points to 6 percent.
This interest rate hike was the fourth this year. The central bank had raised its key interest rate by 1.25 percent this year.
Warjiyo said that the interest rate hike was an attempt to maintain competitiveness of domestic financial market and current account deficit. Bank Indonesia was taken into account the internal and external factors before raising its interest rate hike.
In addition, he added, the central bank saw the dynamics of economic growth in various countries such as the US that expected to have strong economic growth driven by consumption and investment. While Europe, Japan, and China are expected to suffer a decline in economic growth.
Furthermore, Bank Indonesia also considered the impact of monetary policy conducted by several countries such as the US Federal Reserve that expected to increase its benchmark interest rate in September. Meanwhile, the European Central Bank (ECB) and Japanese Central Bank are expected to hold its benchmark interest rate.
“We also saw the trade war tension triggered by the US against several countries and the impact to currency exchange rate,” Warjiyo said, as quoted by CNN Indonesia.
In the internal factor, Warjiyo said that Indonesia’s trade balance and balance of payments are quite challenging. The country posts US$3.08 billion trade deficit in January-July 2018 with import booked US$107.32 billion, while export reached only US$104.24 billion.
The balance of payments booked a deficit of US$4.3 billion in the second quarter of this year as the current account deficit soared to 3 percent of gross domestic product (GDP) or US$8 billion. However, the capital and financial transaction recorded surplus at US$4 billion in April-June 2018.
Warjiyo claimed the domestic economy actually in a decent shape as the country recorded 5.27 percent in economic growth in the second quarter of this year. It reached 5.17 percent cumulatively in the first semester of this year.
In addition, the country also booked tame inflation of 3.18 percent (year on year) in July 2018 and 3.12 percent (year on year) in June 2018.
The domestic and global turmoil has indeed put pressure on the rupiah exchange rate that depreciated 6.26 percent in July 2018 and 3.94 percent in the second quarter of this year.
The rupiah weakened to 7.04 percent against the US dollar since the beginning of this year. But he said that rupiah depreciation level was better than India, Brazil, South Africa, and Russia.
Warjiyo ensured the balance of payment will soon improve as the central bank and government take firm steps to maintain CAD and stabilize rupiah by increasing exports, reducing imports, and boosting tourism.
Warjiyo said that Bank Indonesia will intervene money market and securities in an attempt to stabilize the financial system, especially rupiah exchange rate. The central bank was estimated spent around US$6 billion in market intervention by the end of last week, according to Reuters.