Perry Warjiyo, Governor of Bank Indonesia. (Photo: www.centralbanking.com)Indonesia's central bank raised its benchmark interest rate by 50 basis point on October 20 in a bid to curb rising inflation and reduce pressure on the local currency.
According to Governor Perry Warjiyo, the decision aims at bringing core inflation back within a range of 2% to 4% earlier than previously targeted - in the first half rather than the third quarter of next year.
The move was also intended to ensure that the rupiah reflects its fundamental value against a strong United States dollar.
The decision to increase the interest rate is a front-loaded, pre-emptive and forward-looking measure to reduce inflation expectations which are currently too high, he said in a news conference.
The move follows a 50 basis point increase in September. It marks the first time Bank Indonesia (BI) has raised rates by 50 basis points twice in a row since it adopted the seven-day reverse repo rate as its benchmark in 2016.
BI has implemented a monetary tightening policy later than central banks of other countries due to stable inflation and unchanged energy prices thanks to subsidies from Government since August. However, in early September, the Indonesian government increased fuel price subsidies, pushing inflation to a seven-year high of 5.95% in September./.