BI projects The Fed to raise interest rate to 5.5% in July 2023

Jakarta – Governor of Bank Indonesia (BI), Perry Warjiyo projects that the US Federal Reserve (The Fed) will raise its benchmark interest rate to 5.5% in July 2023.

“In the US, inflationary pressures are still high, especially due to labor market tightness, amidst fairly good economic conditions and easing financial system stability (SSK) pressures, thus encouraging the possibility of an increase in the Federal Funds Rate (FFR) going forward,” Perry said at the RDG, quoted on Friday, June 23, 2023.

“The Fed Funds Rate, which we originally estimated at 5.25%, there is a possibility that our baseline will increase to 5.5% in July,” he said.

On the other hand, Perry added, monetary policy is also still very tight in Europe, while in Japan it tends to be loose. Meanwhile, in China, economic growth is also not as strong as expected amid low inflation, thus encouraging monetary policy easing.

Furthermore, economic recovery in other emerging economies, such as India, remains strong driven by domestic demand and service exports. The economic conditions in developed and developing countries have pushed the US dollar exchange rate to weaken against developed currencies, but strengthen against emerging currencies.

These developments require strengthening policy responses to mitigate the risk of spillovers to external resilience in developing countries, including Indonesia. To that end, BI projects that the global economy will grow by 2.7% throughout 2023.

“Global economic growth is estimated at 2.7% with the risk of a slowdown, especially in the US and China,” he said. (*)

Editor: Galih Pratama