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BI keeps rate unchanged, sees cut only in Q4 despite strengthening rupiah
Bank Indonesia’s benchmark rate remains at 6.25 percent for now, and the central bank expects room for a reduction to open up only in the fourth quarter, despite recent signals pointing to sooner interest rate cuts by the United States Federal Reserve.
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Bank Indonesia Governor Perry Warjiyo (second left), accompanied by senior deputy governor Destry Damayanti (second right) and deputy governors Doni Primanto Joewono (left) and Juda Agung (right), prepares for a press briefing in Jakarta on June 20, 2024, on the result of the bank's board of governors meeting. (Antara/Akbar Nugroho Gumay)
B
ank Indonesia (BI) has kept its benchmark interest rate unchanged and sees room for a cut opening up only in the fourth quarter, despite signals pointing to faster monetary policy easing in the United States.
Following the central bank’s monthly policy meeting in Jakarta on Wednesday, BI Governor Perry Warjiyo affirmed that the BI Rate remained at its current level of 6.25 percent.
“Consistent with our previous statement, room for a BI Rate [cut] will open up in the fourth quarter of 2024”, Perry said, thereby suggesting that no change was to be expected in September either, with BI viewing the third quarter as a time for “further strengthening of the rupiah’s exchange rate stability”.
Trading at Rp 15,520 to the US dollar on Wednesday afternoon, the rupiah has strengthened by 4.52 percent against the greenback compared to its position exchange value at the end of July, thanks to portfolio inflows.
BI noted that most of the August inflows went into government bonds as opposed to those issued by the central bank.
In the first 20 days of August, foreign capital inflows to Indonesian government bonds amounted to Rp 25.17 trillion (US$1.62 billion), followed by BI-issued bonds (SRBI) with Rp 10.8 trillion and stocks with Rp 6.5 trillion, Perry said at Wednesday’s press briefing.
This movement was mainly driven by anticipation of an impending reduction in the US Federal Reserve’s (Fed) benchmark rate, the federal funds rate (FFR). Perry acknowledged that the latest developments suggested the Fed would cut “faster and more than previously estimated”.
