Rupiah Depreciation is In Sight, BI Urged to Immediately Raise Interest Rates

Jakarta – Chief Economist of Bank Rakyat Indonesia (BRI), Anton Hendranata assessed that the distance between Bank Indonesia (BI) interest rates and the Federal Reserve (The Fed) is currently getting smaller. With the narrowing of the gap, he suggested that Bank Indonesia immediately raise its benchmark interest rate.

Anton claimed that currently the benchmark interest rate of BI is at 3.5%. While the benchmark interest rate of the US or the Fed is at 2.5%. “The gap is getting smaller and this could add pressure to the rupiah’s consistent depreciation in the coming periods. I think this needs to be considered carefully,” said Anton, Monday, August 8, 2022.

He further explained that currently rupiah is under pressure which can still be controlled at the level of Rp. 15,000. However, he said, attention must be paid to this pressure so that it does not deepen, and is also needed as a consideration for core inflation.

“Inflation is basically if it’s close to 3%, whether they like it or not, I think BI should respond to an increase in its benchmark interest rate. We’ll see in August for the core inflation that is currently at 2.86 percent yoy in July, in August it will be at 3% or not,” he explained.

According to him, if BI raises its benchmark interest rate in August 2022, this is a natural thing. Because raising the benchmark interest rate does not necessarily sacrifice current economic growth.

“If it goes to 3%, I think there is a possibility that BI will raise its benchmark interest rate. If BI is forced to raise its benchmark interest rate, it does not mean sacrificing the economic growth, which already getting better. Because it is much more aggressive globally” he concluded. (*) Irawati