Explanation of BI Rate
The BI Rate is the policy rate reflecting the monetary policy stance adopted by Bank Indonesia and announced to the public.
The BI Rate is announced by the Board of Governors of Bank Indonesia in each monthly Board of Governors Meeting. It is implemented in the Bank Indonesia monetary operations conducted by means of liquidity management on the money market to achieve the monetary policy operational target.
The monetary policy operational target is reflected in movement in the Interbank Overnight (O/N) Rate. It is then expected that bank deposit rates will track the movement in interbank rates, with bank lending rates following suit.
While other factors in the economy are also taken into account, Bank Indonesia will normally raise the BI Rate if future inflation is forecasted ahead of the established inflation target. Conversely, Bank Indonesia will lower the BI Rate if future inflation is predicted below the inflation target.
Bank Indonesia strengthened monetary operations by introducing a new policy rate known as the BI 7-Day (Reverse) Repo Rate, effective from 19th August 2016. In addition to the existing BI Rate, the new policy rate does not represent a change of monetary policy stance.