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BI keeps interest rate, Fed projection unchanged
In a widely expected decision, Bank Indonesia has held its benchmark interest rate at 6 percent after weighing macroeconomic conditions and prospects, including its projection of monetary policy by the United States Federal Reserve.
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The members of the Bank Indonesia (BI) board of governors pose for a photo before the press at the BI headquarters in Jakarta on Nov. 11, 2023. (The Jakarta Post/Deni Ghifari)
B
ank Indonesia (BI) has kept its benchmark interest rate unchanged at 6 percent after weighing macroeconomic conditions and prospects, including its projection of monetary policy by the United States Federal Reserve.
Following the central bank’s two-day monthly monetary policy meeting, BI Governor Perry Warjiyo announced to the press that BI had maintained its forecast for the Fed to loosen the reins only in the second half of the year.
“We still see that [the federal funds rate (FFR) cut] will take place in the second half. Our assessment is based on the fundamentals. Inflation in America is still above target and likely to remain above target throughout 2025,” Perry said on Wednesday.
US interest rates are important for Indonesia because any change in the cost of funds in the world’s largest economy by GDP will impact capital flows and demand for emerging market currencies and assets.
Perry said economic growth in the US remained solid, which led BI to believe that the Fed would be “patient” about cutting, hence the forecast. In last month’s briefing, Perry had stated that BI estimated the FFR would be cut by a total of 75 basis points (bps) this year.
Perry acknowledged that some market participants had recently speculated on a cut taking place as early as June, and in past briefings he had also acknowledged market speculation that did not pan out.
Such speculation, Perry explained on Wednesday, constituted uncertainty: “It will go up and down. […] That’s one of the reasons why our BI policy rate remains at 6 percent.”
