Bank Indonesia must raise its reference rate to 7%

Bank Indonesia must raise its reference rate to 7%

Tony Prasentiantono. (ANTARA)

The BI rate must be increased to seven percent, although it is late now."
Jakarta (ANTARA News) - Bank Indonesia (BI, the Indonesia Central Bank) must raise its reference rate from 6.5 percent to seven percent to deal with the current economic situation, said an economic observer.

"This policy will help the economy in the short run, not long run. Basically, it will reduce tension among people, and they will continue to put money in banks," noted Tony Prasentiantono, from State University of Gajahmada in Yogyakarta on Thursday.

He said in July, the inflation rate stood at 8.6 percent, which was not balanced with the BI rate of 6.5 percent. This is the reason why many people converted their rupiahs into dollars.

"The BI rate must be increased to seven percent, although it is late now," he said.

The uncertainty over the US stimulus policy has propelled people to convert their assets and money into US dollars. This is the reason why the US currency has appreciated against most currencies in the world.

In Indonesia, he said, securities have also been sold to buy dollars, causing the Indonesia Stock Exchange index as well as the rupiah rate to drop.

"People are now rushing to buy dollars; they are even selling their shares to buy dollars. Even housewives are buying dollars," he added.

Tony said the Governor of Bank Indonesia Agus Martowardojo is carrying a psychological burden and is unsure about raising the reference rate.

He said, "Pak (Mr) Agus does not want the regime to be known as a high interest regime vis-a-vis Pak Darmin (Agus` predecessor). I believe that even Pak Darmin would be compelled to raise the rate because of the situation."

Tony said raising the BI rate is important because in September, much of private or corporate debts would mature.

(Reported by Citro Atmoko/Uu.KR-BSR/H-YH)

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