BI's Rate Hike Momentum Deemed Appropriate

Economy, currency, and commodity analyst Ibrahim Assuaibi has assessed that Bank Indonesia’s (BI) decision to raise the benchmark interest rate (BI-Rate) by 25 basis points (bps) today was appropriate. According to him, this was necessary amid the weakening of the rupiah, which had briefly touched Rp18,200 per US dollar.

For context, the Bank Indonesia Board of Governors Meeting (RDG) decided to raise the BI-Rate by 25 basis points to 5.50%, the deposit facility rate by 25 bps to 4.50%, and the lending facility rate by 25 bps to 6.25%.

“The momentum is very good, due to geopolitical tensions easing slightly following Trump’s statement regarding no mutual attacks between Israel and Iran,” Ibrahim said in a statement on Tuesday (9/6).

He stated that this rate hike aims to stabilise the rupiah and keep inflation in check.

“Because we see that inflation is likely to rise every month, this month included, probably due to the impact of rising prices of imported goods,” Ibrahim explained.

“Now, Bank Indonesia’s policy with the rate hike is quite good. It is just a matter of how government policies can work together with Bank Indonesia to stabilise the rupiah,” he added.

Meanwhile, the rupiah exchange rate against the US dollar had opened stronger in Tuesday morning trading (9/6). Based on market data compiled on Tuesday morning, the rupiah moved stronger by 54 points or 0.29 percent to a position of Rp18,134 per US dollar. Previously, at the close of trading on Monday, the rupiah was at the level of Rp18,188 per US dollar.

However, Ibrahim assessed that this strengthening of the rupiah is only temporary. He noted that there is still no certainty regarding the fiscal situation, which remains in deficit close to 3%.

“This is what the government must pay attention to. Bank Indonesia has gone all out in intervening in the market, in international markets, domestic markets, bonds, foreign exchange, and has even raised rates by 75 basis points,” he said.

Previously, he estimated that by the end of the year, BI would likely raise interest rates by only 100 basis points.

“But as of today, the total is already 75 basis points. There is a strong possibility that if global conditions worsen, Bank Indonesia will likely raise interest rates by 200 basis points, possibly to 2%, by the end of the year. If it is currently at 75 basis points, there is still a shortfall of 125 basis points,” he concluded.