Bank Indonesia Follows The Fed's Hawkish Stance with 50 bps Rate Hike

Bank Indonesia (BI) raised its BI 7 Days Reverse Repo Rate by 50 basis points (bps) to 4.25 percent, with the deposit facility rate increasing to 3.5 percent and the lending facility rate to five percent. This decision was made at the end of a two-day meeting of the September BI Board of Governors Meeting on Thursday. Last month, BI raised its benchmark rate by 25 bps to 3.75 percent, the first increase since Nov 2018.

BI Governor Perry Warjiyo said the rate hike was a move to lower inflation expectations and ensure core inflation return to BI's target of three percent plus minus one percent in the second half of 2023. In addition, BI also raised interest rates to strengthen its rupiah stabilization policy to align with its fundamental value due to the high uncertainty in global financial markets. "BI also continues to strengthen its policy mix response to maintain stability and momentum for national economic recovery with various policy mixes," Perry said.