Economist: BI Rate hike can maintain credit growth

Bank Indonesia's recent decision to increase its benchmark interest rate, the BI Rate, to 5.5 percent is viewed by economists as a move that will not necessarily impede banking credit growth. Instead, the policy is anticipated to strengthen the stability of the rupiah exchange rate and maintain confidence in the domestic economy.

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The policy of raising the benchmark interest rate, combined with the increase in SRBI interest rates, will help stabilize the rupiah and strengthen the confidence of investors, businesses, and the public in the domestic economy.

Mika Martumpal, an economist at CIMB Niaga, explained that the combination of the BI Rate hike and increased yields on Bank Indonesia Rupiah Securities (SRBI) will be instrumental in stabilizing the domestic financial market. This dual approach aims to reassure investors, businesses, and the public about the Indonesian economy's resilience.

Martumpal further noted that Bank Indonesia's strategy extends beyond exchange rate stabilization. The central bank is also focused on ensuring sufficient liquidity within the financial system. To achieve this, it has reopened its repurchase agreement (repo) facility for banks, offering various tenors from three to twelve months. This measure is designed to maintain adequate liquidity in the money market and the banking sector.

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BI also ensures that the financial system's liquidity remains maintained through the repo instrument. Rupiah stability and sufficient liquidity will keep credit growth high even though the cost of fund rises.

The economist believes this comprehensive policy mix is crucial for balancing exchange rate stability with the economy's financing needs. By ensuring sufficient liquidity, banks will still have the capacity to extend credit, even if funding costs rise due to the higher interest rates. Governor Perry Warjiyo stated the rate hike aims to stabilize the rupiah amidst global volatility and attract foreign portfolio investment.

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This policy is taken to strengthen the stabilization of the rupiah amidst global shocks and encourage the entry of foreign portfolio investment into Indonesia.