BI's Governor Perry Warjiyo - Photo by Bank Indonesia.

JAKARTA (TheInsiderStories) – Followed the United States Federal Reserves decision, Indonesia’s Central Bank (BI) raised its reference seven-day reverse repurchase rate (BI-7DRRR) by 25 basis points (bps) to 5.75 percent, said Bank Indonesia governor Perry Warjiyo on Thursday (27/09).

“The governor meeting on Sept. 26-27 decided to raise the BI 7-DRRR benchmark rate by 25 bps to 5.75 percent,” Warjiyo said to the media at his office.

Since early of this year, BI-7DRRR has increased to 125 bps from 4.25 percent in January to 5.75 percent in this month.

Last week, there were a slew of reports by local media that BI had pushed back the schedule for this month monetary policy meeting to Sept. 26-27. The primary reason, according to such reports, the schedule is pushed back, so BI will have time to digest the result from the Federal Open Meeting Committee (FOMC) meeting that will take place on Sept. 25-26, during which the world’s most influential central bank is expected to raise its benchmark Fed Fund Rate.

The reports were inaccurate and misleading, and those who follow BI closely would know about this very quickly. The inaccuracy of the reports was also blatant.

In actuality, BI has not pushed back its schedule for this month meeting. The central bank has fixed the schedule of monthly policy meeting in 2018 since late last year. Furthermore, BI had previously announced that the schedule for 2018 will be held after FOMC had completed its meeting in order to ease volatility.

But, the damages had been done. One angle prevalent after such reports were out was that BI no longer follows the ‘pre-emptive’ approach that had been taken since the current Governor Warjiyo took office in May, 2018.

BI need to raise its policy rate this month, but it will depend on how hawkish is FOMC in its policy statement, which would offer a clue on whether the fourth hike will take place this year, and statements by the Fed Chair Jerome Powell had been seen largely as dovish.

Furthermore, the recent bout of volatility that hit the emerging market like Indonesia of late is less because of expectations building up on rate hike by the Fed, something that the market had factored in for quite a while. Instead, it is the escalating trade war, crude oil price and the expectation of higher US’ fiscal deficit that make the most contribution on volatility in the emerging market.

This wide-ranging of non-monetary factors does not necessarily mean that BI cannot respond to ease the volatility. But the response is likely to be measured and BI has been quite successful in making sure its policy direction is predictable and consistent, which are required in this period of volatility.

Written by Staff Editor, Email: theinsiderstories@gmail.com

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