In the past two weeks, Bank Indonesia-BI twice raised its benchmark interest rate by 0.25 percent. In the Board of Governors' Meeting of Bank Indonesia, on May 30, 2018, BI's benchmark interest rate was decided to rise to 4.75 percent. In the meeting, BI also raised the interest rate of bank deposits in BI in the form of rupiah by 25 basis points to 4 percent..
The decision means changing the policy stance of the central bank from neutral to tight bias. The change in policy stance was taken in response to changes in global economic conditions triggered by the move by the US central bank to raise its benchmark interest rate until the end of this year.
Following the announcement of Bank Indonesia, the rupiah exchange rate traded between banks in Jakarta, yesterday afternoon, moved slightly higher by 2 points (to 13,993 from 13,995) per US dollar.
Quoting a report by Antara news agency on Wednesday, the Director of Asia & Pacific Department of the International Monetary Fund, Changyong Rhee, said that the rate hike by Bank Indonesia is the right decision to anticipate risks.
Rhee said the decision to raise the benchmark interest rate to 50 basis points from 4.25 per cent to 4.75 per cent was a response to maintain the possibility of a rise in core inflation from the strengthening of the US dollar, the benchmark interest rate at global level and world oil prices.
This external pressure has led to a reversal of capital outflows and currency weakness in many developing countries, including Indonesia, in recent weeks.
According to Changyong Rhee, although this situation requires overall oversight, Indonesia has been in a stronger position than in the past in the face of external pressure, because it has good economic resilience.