Indonesia's Foreign Capital Inflows US$6.3B in 1Q 2019
Governor of Bank Indonesia Perry Warjiyo. Photo by TheInsiderStories.

JAKARTA (TheInsiderStories)Bank Indonesia (BI) has surprised markets by holding an unscheduled meeting on May 30 and deciding to hike interest rates by 25 basis points for the second time in one month.

BI itself has sent a signal that another hike of the benchmark rate is on the table at the next monetary meeting next week. The next monetary policy meeting will be held on June 27 to 28.

The central bank’s board of governor raised interest rates for the first time in four years to stem a depreciation of the currency. The latest decision brought the BI seven-day Reverse Repo rate (BI-7DRRR) to 4.75 percent, while the lending facility rate was raised to 5.50 percent and the deposit facility rate to 4.00 percent.

In a press released on Tuesday (19/06), BI Governor Perry Warjiyo expressed readiness to pursue a pre-emptive, front loading, and forward the curve policy in order to anticipate the Federal Reserve (Fed) and European Central Bank policy. BI will conduct a Board of Governors Meeting on 27-28 June 2018.

Warjiyo said the policy could be an increase in interest rates coupled with the relaxation of loan to value policy to boost the housing sector. In addition, the central bank will continue the loose liquidity and intensive communication with the government.

BI believes that Indonesia’s economy, the especially financial market remains strong and attractive to investors. With a sound investment, Indonesia will maintain the economic stability and economic growth.

Warjiyo, who officially inaugurated as BI governor on May 24, 2018, and will lead until 2023, said BI will prioritize on stability but will seek ways to support growth in his first comment after inaugurated. In the pro-stability, Warjiyo pledged to be more responsive and advance about interest rate policymaking.

In addition, the central bank will continue intervening in bond and foreign exchange market. Furthermore, Warjiyo will continue to coordinate with the government and Financial Service Authority to jointly stabilize rupiah exchange rate. Lastly, BI plans to meet banks and investors in the near future to convince about Indonesia’s economic condition.

In the pro-growth policy, the governor has four instruments to boost economic growth namely macro-prudential policy relaxation, especially to support the housing sector. Next, is financial market deepening due to its potential to fund infrastructure projects. The third is the payment system to support the national strategy as well as the digital economy and lastly, boosting the sharia economy.

Based on the global sentiment, we assessed, the BI-7DRRR will raise again one more time and at the end of 2018 landed at 4.84 percent to 5 percent.