Indonesia rules out aggressive policy tightening similar to Fed

INDONESIA’S central bank governor Perry Warjiyo said on Wednesday (Sep 7) that the benchmark interest rate was set to rise further, but not to expect policy tightening to be as aggressive as the US Federal Reserve.

“If I say BI (Bank Indonesia) rate won’t rise, I’ll be lying. But if I say BI rate will be raised like the Fed, I’ll also be lying,” Warjiyo told a briefing with reporters.

“Please don’t think we will be aggressive like the Fed,” he said.

BI raised borrowing costs by 25 basis points last month for the first time since 2018 after the benchmark rate had been at a record low of 3.50 per cent, in a move some economists believe was taken in anticipation of a recent hike in government subsidised fuel prices.

The high subsidy budget had kept a lid on the inflation rate even when global policymakers including the Fed have been hiking rates at a furious pace over the past several months.

BI would update its forecast for core inflation and inflation expectations in the wake of the fuel price hike at its September policy meeting and determine the appropriate policy response, Warjiyo told the briefing.

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The government has predicted inflation will hit a rate of 6.6 per cent-6.8 per cent for 2022, compared with the August rate of 4.69 per cent, which was already near a seven-year high and above BI’s target for a third straight month due to rising food prices. REUTERS