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Bank of Indonesia Maintains Interest Rate at 5.75% in Line with Expectations to Safeguard Rupiah

The Bank of Indonesia (BI) has adhered to market forecasts by keeping its seven-day reverse repurchase rate, also known as the policy rate, steady at 5.75%. This decision marks the sixth consecutive month of maintaining interest rates at their current level.

BI’s choice to retain the policy rate at a four-year high is a strategic move aimed at safeguarding the stability of the Indonesian rupiah. In a simultaneous move, BI has reduced the reserve ratio of certain commercial banks in order to encourage increased lending activity. This dual approach has been implemented with the intention of fostering economic growth. The central bank has also underscored its commitment to closely monitor the trajectory of economic expansion.

In a statement, the governor of BI highlighted, “The core focus of BI’s monetary policy is to reinforce the resilience of the rupiah, mitigating the impact of inflation stemming from imports and managing the consequences of fluctuations in the global financial market.

“Recent data from the National Statistical Office of Indonesia, released on August 15, sheds light on the country’s trade performance. Notably, Indonesia’s exports for the month of July experienced a year-on-year decline of 18.03%, amounting to $20.88 billion. This decrease aligns closely with analysts’ predictions, who had forecasted an 18.30% drop. Concurrently, imports into Indonesia witnessed an 8.32% year-on-year contraction, reaching a total of $19.57 billion. This figure surpassed the analysts’ earlier projection of a 15.50% decrease.

For the month of July, Indonesia registered a trade surplus of $1.31 billion. However, this figure reflects a decline from the trade surplus of $3.46 billion recorded in the previous month of June.

The decision by the Bank of Indonesia to maintain the policy rate at its current level is rooted in the broader context of global economic uncertainty. As the nation’s central bank endeavors to balance inflation risks and bolster economic growth, this approach reflects a nuanced strategy to navigate Indonesia’s economic landscape in the face of external challenges.

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