BI may increase its interest rate again: Analyst

JAKARTA. Citi Research economist Helmi Arman has predicted that Bank Indonesia (BI) will increase its benchmark interest rate and overnight deposit facility rate (Fasbi rate) in the coming months as it is expected that the inflation rate will remain high.

“We are maintaining our prediction on the inflation rate which will stand at 8.2 percent until the end of this year while the BI rate and Fasbi rate are predicted to be 6.5 percent and 4.75 percent respectively,” said Helmi in Jakarta on Tuesday.

The economist said that he hoped BI could respond to inflation by raising the policy rates (Fasbi and BI rates) by two consecutive rises of 25 basis points (bps) in July and August.

According to Helmi, it is in those two months that people will feel the full effects of the inflation resulting from the subsidized-fuel price increase.

Helmi also hoped that BI would carry out an additional tightening policy of macro-prudential regulations to anticipate inflation in those two months. “For example the imposition of a tighter policy to limit property loans,” he said.

A BI board of directors meeting on June 13 decided to increase the BI rate by 25 bps to 6 percent after maintaining it at 5.75 percent for 16 months.

BI also decided to increase the Fasbi rate by 25 bps to 4.25 percent from 4 percent as part of its efforts to maintain monetary stability. (ebf)