Hold, hike and cut? Bank Indonesia says there’s logic to the policy mix

Bank Indonesia (BI) addressed criticism over its recent policy package, stating that the measures are intended to improve how its decisions affect the broader economy. The central bank maintained its benchmark interest rate, raised the overnight deposit facility rate, cut banks’ reserve requirement ratio (RRR), and offered more FX hedging discounts.

BI's head of economic and monetary policy, Firman Mochtar, explained that the policy mix aims to harmonise and synchronise the policy rate with the central bank's monetary operations strategy. The higher deposit facility rate restores a symmetrical interest-rate corridor, bringing both the deposit and lending facility rates to 75 basis points from the benchmark rate.

Firman added that the corridor adjustment aligns with the central bank's planned reserve-requirement cuts, which will decrease by a cumulative 200 basis points by December.

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