Kalla Asks Bank Indonesia to Lower Rate, Triggers Critics

President Joko Widodo and VP Jusuf Kalla - Photo by President Office

JAKARTA (TheInsiderStories) – Indonesia Vice President Jusuf Kalla asked Bank Indonesia (BI) to assess and lowered the 7-Day Reverse Repo Rate (BI 7-DRR) rate. He considered that lower rate will create a better investment climate, especially in manufacturing industries and wiil help to boost exports.

This statement was given followed his meeting with several ministers, talked about efforts to increase investment in Indonesia, early this week. Some of the main discussions are about simplify the business procedure, including regulation and permit.

“We asked so the rate can be lowered again. This can be reached if we give easings,” he said at the meeting.

Kalla’ demand to lower the BI 7-DRR rate has gained critics, as reported by local media. An economist from University of Indonesia, Fithra Basri rated the government intervention in the central bank could confuse the market because the two institutions have different functions.

He noted, the rate policy aims to stabilize Rupiah. If the rate will be decreased improperly it may cause Rupiah depreciation, he added.

Indonesian central bank will hold Board of Governors meeting on Feb. 20-21. In January, the central bank holds BI 7-DRR rate at 6 percent, along with deposit facility at 5.25 percent and lending facility at 6.75 percent. BI’ Governor Perry Warjiyo has said the Bank would maintain its tight policy to keep Rupiah stable and to control the country’ current account deficit (CAD).

He revealed that it was in accordance with government’ plan to bring CAD to a safer position, and to maintain domestic financial assets attractiveness. In 2018, Indonesia recorded deficit $31.1 billion CAD, or equal to 2.98 percent of Gross Domestic Product (GDP).

The figure hiked significantly $17.29 billion deficit, or 1.7 percent of GDP, in 2017. With such condition, Warjiyo said the central bank and government need to cooperate to narrow down the CAD to 2.5 percent of GDP, which is the target for this year.

During last year, the central bank had aggressively increased the rate by 175 basis points.

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