The decision is part of the front loaded, pre-emptive, and  forward-looking steps to lower the expectation of high inflation.
Jakarta (ANTARA) - Bank Indonesia (BI) decided on Thursday to raise its key interest rate by 50 basis points to 5.25 percent, from 4.75 percent.

"The decision is part of the front loaded, pre-emptive, and forward-looking steps to lower the expectation of high inflation," BI Governor Perry Warjiyo stated while announcing results of the monthly meeting of BI's board of governors that was monitored online in Jakarta on Thursday.

The central bank also increased the deposit facility rate and lending facility rate by 50 basis points respectively to 4.5 percent and six percent.

Warjiyo said the decision was also aimed at ensuring that the core inflation will return to a range of two to four percent earlier than expected in the first half of 2023 as well as at strengthening the stability of the rupiah's exchange rate.

As such, the rupiah is expected to run in parallel to its fundamental value due to the appreciation of the US dollar and the high level of uncertainty about the global financial market.

BI would always strengthen its response to the policy mix to maintain stability and momentum of economic recovery through seven steps, he affirmed.

The first step is strengthening monetary operations by raising the interest structure in the money market in keeping with the key interest rate hike. This is chiefly designed to ease the expectation of high inflation and ensure that inflation will return to its target earlier.

The second step is strengthening the stability of the rupiah's exchange rate as part of the efforts to contain inflation, particularly imported inflation by intervening in the foreign currency market.

The third step is continuing to sell and purchase government bonds (SBN) in the secondary market.

The fourth step is issuing BI Islamic bond (sukuk) using inclusive payment securities (SukBI) as an underlying asset.

The fifth step is continuing the transparency policy on the credit base interest rate (SBPI) by conducting deep assessment related to the banking interest response to the interest rate policy.

The sixth step is encouraging the use of Quick Response Code Indonesia Standard (QRIS) and continuing to develop QRIS features and services, including expanding trans-national QRIS after the target of 15 million new QRIS users was achieved in October 2022.

The seventh step is encouraging innovations in payment system, including BI-FAST.

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Translator: Agatha Olivia V, Suharto
Editor: Sri Haryati
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