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BI holds key interest rates, projects cuts in second half
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Finance Minister Sri Mulyani (left), Coordinating Economic Minister Airlangga Hartarto (second left), Bank Indonesia Governor Perry Warjiyo (second right) and Financial Services Authority (OJK) chairman Mahendra Siregar (right) pose for a photo on July 28, 2023, before the press, in Jakarta . (The Jakarta Post/Deni Ghifari)
B
ank Indonesia (BI) has kept its benchmark interest rate unchanged at 6 percent and reaffirmed that cuts to the policy rate might be in order in the second half of this year.
Briefing the press on Wednesday after the central bank’s two-day monthly policy meeting, BI Governor Perry Warjiyo noted that the decision considered geopolitical developments and a global economy that was performing better than previously estimated.
“For now, we will maintain the BI Rate. Be patient, okay. Until when? [According to] our baseline scenario, the plan is [to reduce the rate] in the second half [of 2024],” Perry said, before mentioning three conditions to be met for rate cuts, namely under-control inflation, economic growth and a stable rupiah exchange rate.
BI had maintained the key rate at 5.75 percent for most of 2023, before unexpectedly hiking it by 25 basis points (bps) in October, citing global economic uncertainties as the main concern.
In February these uncertainties remain on BI’s mind, as geopolitical tensions persist and may disrupt global supply chains, according to Perry.
Furthermore, BI also considered when the United States Federal Reserve might start cutting its interest rate benchmark, the federal funds rate (FFR), Perry explained, adding that a cumulative reduction of 75 bps in the FFR was projected for the second half of 2024.
The latest US labor market and inflation data has dashed hopes for an imminent FFR reduction, with market pricing now pointing to June as the most likely time for a first rate cut in the US, according to the CME FedWatch Tool.
