The Central Bank of the Republic of Indonesia held its monetary policy meeting on February 17, 2015. In the meeting, the bank interest (BI) policy was reduced from 7.75%, to 7.50%. The Bank also reduced the interest on deposit (bunga deposito) rate from 5.75% to 5.50%. However, the lending rate was left unchanged at 8%.
Looking at currency developments, the Bank reported that the rupiah continues to see a lull, against the US dollar. This might benefit the current account deficit for a few months. However, the monetary policy might have to be changed, to ensure that the rupiah appreciates to stabilize the economy. So, experts expect the BI to increase to approximately 7.74% by the end of 2015.
So what happens when there is an interest rate increase? When the rate increases, it also affects various other areas. For example, with the rates gradually soaring, more and more of your monthly installment payments will only be directed towards the interest quotient of the debt. This will leave very little to pay off the actual principal. For better control over your finances, there are a few investment changes that can help. Start incorporating these when there is a marginal increase in the bank interest (bunga bank) rates.
Staying Prepared for an Interest Rate Inflation
Here’s a look at some things that might help you save in a volatile scenario:
- Start paying more to close your outstanding loans or debts. If an increase in such payments puts you in a tight spot, cut down on excess spending. You will be able to accumulate surplus money in a few months to overcome the deficit.
- The investor should keep a check on the real return on his investment. It should be noted that any advantage gained from a higher fixed deposit rate will be erased due to the reduced purchasing power. The interest on deposits will increase during inflation. In such a case your will face a negative real return of your total investments. So, it is better to invest in stocks to avoid this.
- When the rates start rising, drop the idea of buying a house. This is because it might be too expensive. Alternatively, you could double your efforts to make a quick investment. Make sure that you invest when the market inflation has not yet set in.
- There is 0% financing available from some financial institutions. Take advantage of these to make your purchases. In an inflationary setting, you as an investor should preferably look at options that either produce positive real return or cut down on the amount of debt that has lined up against your portfolio.