Friday, 11 May 2018 17:22

BI Needs to Raise Interest Rate

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Head of Center for Economic and Policy Studies of Gadjah Mada University (UGM), Tony Prasetiantono Head of Center for Economic and Policy Studies of Gadjah Mada University (UGM), Tony Prasetiantono VOI-REZHA

Head of Center for Economic and Policy Studies of Gadjah Mada University (UGM), Tony Prasetiantono viewed that Bank Indonesia -BI needs to raise its benchmark interest rate to face the rupiah depreciation against the current US dollar. In a discussion held in Jakarta recently, he said, BI should realize that the trend of low interest rate cannot continue because of spending foreign reserves owned by Indonesia.

“So, I think BI should quickly make interest rates up to 25 or 50 basis points. But the important thing is that BI should be aware that the era of low interest rates cannot continue. The US has raised interest rates, and other countries respond the same. Even, China is also small but there is already an increase in interest rates. Unfortunately, we spend too much foreign exchange,” Tony Prasetiantono said.

Although there is no guarantee that the rise of interest rate is able to strengthen the rupiah, Tony Prasetiantono said that the effort could reduce the burden on foreign exchange reserves. Currently, Indonesia's foreign reserves have dropped considerably despite being within safe limits. He further explained that the last condition of Indonesia's foreign exchange is at $124 billion dollars. This condition has decreased drastically, considering that in January 2018, Indonesia's foreign exchange reserves managed to reach the highest point at $132 billion dollars. (VOI/Rezha/RHM)

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