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BI may maintain its reference rate to prevent CAD from widening

18 December 2019 14:10

JAKARTA. Bank Indonesia is predicted to keep the reference rate at 5%, to anticipate the widening of the current account deficit (CAD) in Q4 2019.

Bank Permata economist Josua Pardede believes that Bank Indonesia will take this step after the accommodative policies started in 2H 2019. This is reflected in the cuts or the BI 7 Days Repo Rate (BI7DRR) made during the period of July-October 2019.

Although expectations of inflation were still controlled in the short term and rupiah exchange rate was stable, but Bank Indonesia needed to maintain an interest rate difference, Joshua said as quoted by Bisnis, Wednesday (12/18).

This, Joshua said, also considers the fact that the Fed would also potentially maintain its reference rate in the range of 1.5% - 1.75% in 2020.

According to Josua, maintaining the interest rate difference is expected to maintain the attractiveness of financial assets denominated in rupiah, which can increase capital inflows and increase liquidity in the banking system. (AM/AR)

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