We appreciate Bank Indonesia (BI) raising its benchmark interest rate by 25 basis points as a preemptive measure to cope with inflation and to maintain the rupiah exchange rate.
The monetary policy must be supported in the fiscal aspect because the two complement each other. President Joko “Jokowi” Widodo has asked his ministers to properly calculate the impact of rising energy and food prices on subsidies and the resilience of the state budget. On the other hand, if energy subsidies are reduced, the impact on inflation, people's purchasing power and economic growth must also be calculated well.
During its board of governors’ meeting on Tuesday, Bank Indonesia raised its benchmark interest rate by 25 basis points to 3.75 percent. According to BI Governor Perry Warjiyo, the increase in the benchmark interest rate is a precautionary measure to anticipate rising core inflation and inflation expectations. It is also to maintain the rupiah exchange rate.
For one thing, we benefit from high global food and energy prices, such as the prices of crude palm oil and coal.
The inflation we are experiencing today is caused by the increase in global energy and food prices. Therefore, our approach must be more careful in viewing and solving the inflation problem. For one thing, we benefit from high global food and energy prices, such as the prices of crude palm oil and coal.
Also read:
> Raising Interest Rates, BI Steps on the Brakes Early
> Core Inflation Under Control, BI Holds Rates
Currently, core inflation, which represents the long run trend in the price level, is still low. Up until July 2022, core inflation rose 2.86 percent on an annual basis. However, BI predicts that core inflation will reach 4.15 percent, above BI's target of 4 percent.
An increase in the use of non-fossil energy sources requires political support and is in line with the global trend in reducing carbon emissions.
Learning from the COVID-19 pandemic, the threat of geopolitical instability and climate change, Indonesia must immediately become more independent in the energy and food sectors. Sources of inflation, namely energy and food prices, are external factors. We should be able to produce our own food given the high biodiversity of our local food. We have non-fossil energy sources, namely water, wind and geothermal energy. An increase in the use of non-fossil energy sources requires political support and is in line with the global trend in reducing carbon emissions.
We must be able to boost exports of food and energy-based commodities that have a comparative advantage and strong competitiveness in international markets, such as palm oil and electric batteries. Entrepreneurship needs to be fostered so that entrepreneurs can develop local resources for the domestic and export markets. Earnings from exports must be sent home to help maintain the stability of the rupiah exchange rate.
(This article was translated by Hendarsyah Tarmizi)
