Monetary Stance: September

September: the second hike of 50 basis points to 4.25%

Price of Money Adjustments

Bank Indonesia (BI) Board-of-Governor (BOG) monthly September meeting last week (7/22) decided to increase the country’s policy rate BI7-Day Reverse Repo Rate (BI7DRR) by 50 basis points to 4.25%.  This is the second hike this year after the central bank increased the rate by 25 basis points in August to 3.75%.

In the middle of economic recovery after the peak of the COVID-19 pandemic, which Indonesia rates relatively well, the hike is inevitable.

The hike is primarily targeted to support the country’s currency value against other major currencies, especially the United States Dollar (USD).

The USD index has increased from around 90 index-point in the early last year, to 96 index-point last year, and a year-high of 114.11 index-point on September 27. Likewise, the 10-year US government bond yield has risen from 1.509% end of last year to 3.75% yesterday.

The US central bank the Federal Reserve intensified the hike in the policy rate in June this year, at the time when the country’s inflation rate hit its 40-year high of 9.1%, and has since mentioned amplifying the tightening in the coming months.

Against the backdrop, many countries followed although at different paces and magnitude.

Cheers,