In the first part of this analysis, I discussed the effects of BI rate at 7.5% to inflation and real sectors. At the second part, I am discussing about the effects of BI rate at 7.55 to exchange rate and economy growth.
The Effects of BI rate to Exchange Rate
In the first part, I have stated that BI rate at 7.5% failed to attract foreign investors to buy Rupiah instead of United State Dollar or by another words, capital inflow into Indonesia is still low. In this case, then emerging a question, is it BI rate still less attractive for foreign investors or is there another reason?
By BI rate at 7.5%, it should be Rupiah exchange rate to US Dollar lower than Rp9,000/USD. Nevertheless, in last 8 month Rupiah’s movement was at the range of Rp10,000 – Rp12,500. I think that BI rate is quite attractive for foreign investors to invest their money in Rupiah. Indonesia political condition at the moment is the main reason for weakening of Rupiah exchange rate to US Dollar.
After DPR members and presiden election, Indonesia political condition is still unstable. This condition causes a fear among foreign investors in order to invest their money in Rupiah. Many of them are still in phase wait and see until Indonesia political condition has reached stable. Thus we hope that politicians in legislative and government can reach agreement to build Indonesia which has strong in political and economy.
Effects of BI rate to Economy Growth
Based on the data in 2013, real growth of GDP of Indonesia was at 5.3%, number 49 in the world. The highest GDP real growth was South Sudan, while China, as the best economy country, was only ranked 14 in the world. At the Southeast Asia region, Laos was the highest real growth, at 8.3%, among other countries. While, real growth of GDP of Timor Leste was at 8.10%, higher than Indonesia, yet real GDP growth of Malaysia and Singapore were at 4.7%, and 4.10% respectively. At least, we had something to be proud because Indonesia real GDP growth was higher than real GDP growth of Malaysia and Singapore. However, Indonesia GDP real growth in 2013 was lower than three years previously in which in 2012, 2011, and 2010 were at 6.2%, 6.5%, and 6.2% respectively.
In my opinion, BI rate at 7.5% has succeeded to slow down the decrease of GDP real growth. Europe countries and England, for example, which its central banks set interest rate at 0.5% are facing problems of low economy growth. Indeed, Europe Central Bank (ECB) has introduced negative interest rate and bought credit back up assets policy in order to boost its economy growth.
To sum up, based upon my analysis earlier, BI rate at 7.5% is not good for keeping low inflation rate and the development of real rectors. However, despite Rupiah exchange rate is higher than the normal at Rp9,000/USD, BI rate has succeeded to keep it not to slump sharply. BI rate also succeeded to keep high economy growth while many countries in the world are still facing problem to boost it economy growth.