Bank Indonesia Estimated Not to Raise Interest Rate at Level 4.25 Percent

By : Wiyanto Dan Aldo Bella Putra | Thursday, April 19 2018 - 12:00 IWST

Ekonom Institute for Development of Economics and Finance (Indef) Bhima Yudhistira
Ekonom Institute for Development of Economics and Finance (Indef) Bhima Yudhistira

INDUSTRY.co.id - Jakarta - Bank Indonesia (BI) will release an interest rate policy or BI 7days repo rate. It is estimated that interest rates will remain at 4.25%.

Bhima Yudhistira, an economist at INDEF, said that there are several factors that are expected to be BI's main concerns, from external factors in May that the Fed will raise its benchmark rate by 25 bps to continue its earlier monetary tightening.

"This will affect the rising yield of bonds and investor sentiment to transfer money to assets with higher returns," he said in Jakarta on Thursday (19/4/2018).

According to him, other reasons for the geopolitical turmoil, namely the increased tension in the Middle East due to the Syrian conflict and the uncertainty of US-China trade war could disrupt the performance of the domestic economy, especially the export side. Then world oil prices are expected to rise to 75 USD per barrel for Brent in May. Currently, the price of oil is 70-73 usd per barrel. The rise in crude oil prices affects inflation from administered prices, especially non subsidized fuel prices.

"Volatile foods inflation especially ahead of Ramadhan needs to get the main attention. Based on data from the National Strategic Food Price Information Center some commodities such as onion have increased price of 32.6% (mtm), chicken meat 4.8%, garlic rose 1.19 % and beef was up 0.04%, "he said.


Then, he said the next reason; in the second quarter of 2018 there are several issuers who will distribute dividends. This makes dollar demand increase. The direct effect on current account deficits tends to widen following seasonal factors.

BI, he said, should see banking intermediation per data in February 2018 running slowly proven from the decline in bank credit interest rate of only 5 bps to 11.27% while for KMK interest only down 3 bps to 11.78%. Consumer loans fell 8 bps to 14.5%.

"BI is not expected to tamper with interest rates throughout the year 2018, BI will use other ways to spur banking intermediation, especially with the control of inflation and coordination with OJK for operational efficiency in order to lower bank loan interest," he said.

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