BI?s Delay in Increasing Rates Responsible for Declining Rupiah?

Fathan Qorib, Andin Aditya Rahman

Bank Indonesia (BI) decided to increase its rate on 29 August by 50 base points from 6.5 percent to 7 percent. However, Tony Prasetiantono, the Head of the Economic and Public Policy Research Center at Gadjah Mada University believes that BI’s decision to do so was too late.

In increasing its rate now, he said, BI lost its momentum two weeks ago when its Board of Governors decided to maintain the rate at 6.5 percent.

“If only the BI rate was increased two weeks ago maybe the rupiah’s depreciation will not be as severe as it is now,” he wrote in a shot message to Hukumonline last Friday.

According to Tony, if BI had raised its rate on 15 August rather than 29 August, the projected inflation rate would not be as high as it is now.

“If the rupiah is under control, imported inflation will not be as dire and hence the expected inflation rate would not be as high as 9.2 percent,” he explained.

Meanwhile, the Governor of BI Agus D.W. Martowardojo denied that the decision to increase the BI rate and deposit facility (Fasbi) rate was late.

The Governor asserts that the increases in the BI rate and Fasbi rate last June and July properly reflected the economic conditions at the time.

“We have responded appropriately by increasing the rates by 25 and 50 base points in June and July, respectively. We viewed this to be sufficient. In maintaining the stability of the rupiah, we have focused on macro-prudential considerations. We even have responded with supervisory actions,” explained Agus at the House of Representatives building last Thursday.

The Governor continued that the decision not to increase the BI rate on 15 August was based on BI’s knowledge of and deference to the Government’s plan to issue an economic policy package which included a response to the current account deficit. When the Government issued its economic policy package, BI responded with five complementary monetary policy packages of its own.

“We also supported the Government’s package with our own package for the measure taken to be effective. However, we believed that we had to review our own policies when the Government issued its policy packages,” concluded Agus.

(hot/kc)

 

 

BI Late Increasing Rates Responsible for Declining Rupiah?

Fathan Qorib, Andin Aditya Rahman

Bank Indonesia (BI) has decided to increase its rate on 29 August by 50 base points from 6.5 percent to 7 percent. However, Tony Prasetiantono, the Head of the Economic and Public Policy Research Center at Gadjah Mada University believes that Bank Indonesia’s decision to raise its rate was  too late.

In increasing its rate now, he said,  BI lost momentum  two weeks ago when the BI board of governors decided to maintain the  rate 6.5 percent.

“If only the BI rate was increased two weeks ago, maybe the rupiah’s depreciation will not be as severe as it is now,” he wrote in a shot message to Hukumonline last Friday.

According to Tony, if BI had raised its rate on 15 August rather than 29 August, the expected inflation wold not be as high as it is now.

“If the rupiah is under control, imported inflation will not be as dire and hence the expected inflation rate would not be as high as 9.2 percent,” he explained.

Meanwhile, the Governor of BI Agus D.W. Martowardojo denied that the decision to increase the BI rate and deposit facility (Fasbi) rate was late.

The Governor asserts that the increases in the BI rate and Fasbi rate last June and July properly  reflected the economic conditions at that time.

“We have responded appropriately by increasing the rates by 25 and 50 base points in June and July, respectively. We viewed this to  to be sufficient. In maintaining the stability of the rupiah, we have focused on macro-prudential considerations. We even have responded with supervisory actions,” explained Agus at the House of Representatives building last Thursday.

The Governor continued that the decision not to increase the BI rate on 15 August was based on BI’s knowledge and respect to the Government’s plan to issue an economic policy package which included a response to the current account deficit. When the Government issued its economic policy package, BI respondedwith five complementaty monetary policy packages of its own.

“We also supported the Government’s package with our own package for the measure taken to be effective. However, we believedthat we had to review our own policies when the Government issued its policy packages,” concluded Agus.

(hot/kc)