Bank Indonesia Tightened Reserve Requirements for Lenders, Keeps Benchmark Rate Unchanged

- 31 May 2022 18:36 WIB
Indonesia's central bank governor Perry Warjiyo (Photo courtesy of Bank Indonesia)
Indonesia's central bank governor Perry Warjiyo (Photo courtesy of Bank Indonesia)

JAKARTADAILY.ID – Indonesia's central bank raised reserve requirements for commercial banks, while keeping its benchmark interest rate steady, as it seeks to smooth out excess liquidity without disrupting the country's economic recovery from the COVID-19 pandemic.

The central bank, Bank Indonesia, said in a statement on May 24, 2022, that it kept its 7-day reverse repo rate at 3.50 percent as it seeks to strengthen synergy to maintain stability and support economic recovery. 

The central bank's move was in line with the Indonesian government's efforts to ease price pressures by disbursing higher subsidies this year to absorb higher energy costs amid higher global commodity prices.

"The BI (Bank Indonesia) Board of Governors Meeting agreed on 23th and 24th May 2022 to hold the BI 7-Day Reverse Repo Rate at 3.50 percent, while also maintaining the Deposit Facility (DF) rates at 2.75 percent and Lending Facility (LF) rates at 4.25 percent," Bank Indonesia said in the May 24 statement.

"The decision is consistent with the need to manage inflation and maintain exchange rate stability while continuing to foster economic growth amid escalating external pressures stemming from the geopolitical tensions between Russia and Ukraine as well as faster monetary policy normalization in several advanced and developing economies," Bank Indonesia said in the statement signed by Erwin Haryono, the Head of Communication Department and  Executive Director at Bank Indonesia.

Inflation and growth forecast

Stable inflation would give room to Indonesia's central bank to keep its key rate at a record low to help stimulate the economy.

Some central banks in Southeast Asia, such as the Philippines and Malaysia have already waged war against inflation in their respective countries by raising borrowing costs.

In Indonesia, the central bank is at ease as core inflation, which is a key measurement for the bank in its policy rate setting, has been relatively low at below three percent, even though headline inflation climbed to a 3.5 percent last month, pushed by the rise in volatile foods.

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Editor: Suksmajati Kumara

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