Indonesia: Bank Indonesia Maintains Key Interest Rate

Ignoring calls from various quarters to reduce interest rates, Bank Indonesia maintained the current level of interest rates. BI has taken a cautious approach despite the Rupiah's recent strengthening and the high interest rate environment. BI is of the opinion that inflationary pressure still poses a threat to macroeconomic stability. Speaking during a hearing with the House of Representatives' financial commission, BI's Senior Deputy Governor Miranda S. Goeltom said that the strengthening of the Rupiah is not its main and only consideration in determining its policies. Miranda explained that BI had to consider other economic indicators, particularly future inflationary pressures for determining the current policy.

Global oil price is one of the external inflationary pressures, which could affect inflation, added Goeltom. The deputy governor also mentioned inflationary pressures could also arise from a possible electricity rate hike, which would add 0.3percentage points for every 10% increase. BI is forecasting inflation in the range of 7% to 9% in this year. BI has made six increases in its reference BI Rate in the past six months, from 8.5% in July last year to current level of 12.75%.