Presidential Advisor Speaks Out on the Impact of the 6.75% BI Rate on Industry

Presidential Special Advisor for Employment and Labour Welfare Said Iqbal has responded to concerns that the increase in the benchmark interest rate, the BI Rate, to 6.75% is not pro-industry and pro-worker. Said Iqbal stated that the benchmark rate hike was unavoidable. According to him, this is a step to stabilise the exchange rate against the US dollar. He noted that Bank Indonesia (BI) has been intervening in the market by utilising foreign exchange reserves. However, BI cannot continue to do this indefinitely, as the fundamental problem is one of foreign investor confidence. “Foreign investors are withdrawing their capital daily, or there is an outflow in Indonesia’s capital market system, so BI is using the second method. Like it or not, for the time being, before the economy normalises or while confidence is still at a low point, the step is to raise interest rates,” Said explained. He described the situation as a ‘double-edged sword’, but believes BI has carefully considered this move. He is confident that this BI policy is for the short term, and when conditions return to normal, the benchmark interest rate will be lowered. “It is not forever. Because at some point, when the economy starts to normalise, the dollar starts to, the rupiah starts to strengthen against the dollar, the interest rate will be returned so that industry can borrow business credit at a lower interest rate,” he explained. He acknowledged that many companies are experiencing pressure due to the rise of the US dollar, especially companies that rely on imported raw materials. For example, the pharmaceutical company PT Molex Ayus Pharmaceutical was reportedly threatening layoffs due to an inability to meet demands for a minimum wage increase for workers. According to Said, companies like Molex Ayus face difficulties because production raw materials are purchased in US dollars, while their products are sold domestically in rupiah. This is quite burdensome for the company.