Economist: BI Rate Needs to Rise 25 Basis Points

Fakhrul Fulvian, Chief Economist at Trimegah Sekuritas Indonesia, advises Bank Indonesia to increase its benchmark interest rate, the BI Rate, by 25 basis points during the ongoing July 20-21 meeting. Fulvian believes this step is necessary despite recent positive market movements.

Fulvian's recommendation stems from Indonesia's substantial need for foreign capital inflow this year. He argues that a rate hike would enhance the attractiveness of domestic financial assets, thereby drawing in the required investment. "In our view, Bank Indonesia still needs to continue raising the interest rate by 25 basis points at the July RDG," he stated.

This proposed hike is not solely based on current market conditions but also aligns with Bank Indonesia's previously stated "pre-emptive" approach. Fulvian emphasized that the central bank's credibility is bolstered when its communication is followed by concrete policy implementation.

Recent market performance has been encouraging, with the Indonesian Stock Exchange (IHSG) showing strong gains and the rupiah appreciating against the US dollar. The rupiah stood at 17,977 per dollar on Monday morning, a recovery from the previous week's level above 18,000. The IHSG opened higher, gaining 21.95 points to reach 6,197.

Fulvian attributes this improved sentiment to increased investor confidence in Indonesia's economic prospects, particularly following S&P Global's reaffirmation of the country's investment-grade sovereign rating. However, he cautioned that short-term market stabilization should not overshadow the persistent external challenges. Indonesia still requires an estimated $11 billion in foreign capital by year-end to ensure a stable balance of payments and a strong rupiah.

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In our view, Bank Indonesia still needs to continue raising the interest rate by 25 basis points at the July RDG