Central Bank interest rate is a rate in which a reference for commercial bank to set interest rate for deposit and loan. On Tuesday, 7 October 2014, once again Indonesia Central Bank or commonly known as Bank Indonesia (BI) has set its interest rate or BI rate at 7.5%. It means almost a year BI had decided to keep BI rate at 7.5%. There are numerous questions emerging among people, why does BI rate remain maintained at 7.5%? Certainly this decision has its own aim, nevertheless through this essay I would like to present my own opinion regarding effects of BI rate. I will divide my analysis into two parts in which this part, as first part, will discuss effects of BI rate to inflation rate and real sector, while second part will discuss the effects of BI rate to exchange rate and economy growth.
