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BI cuts benchmark interest rate by 25 basis points
The reduction of Bank Indonesia’s key interest rate brings to an end more than two years of rising borrowing costs. The move follows weeks of well-contained inflation and a strengthening rupiah and comes just hours ahead of a much-anticipated interest rate decision by the United States’ Federal Reserve.
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Bank Indonesia Governor Perry Warjiyo answers questions from journalists on May 25, 2023, following the central bank’s monthly monetary policy meeting in Jakarta. (BI/Screenshot)
B
ank Indonesia (BI) has cut its key interest rate by 25 basis points (bps), bringing to an end more than two years of rising borrowing costs.
The move follows weeks of well-contained inflation and a strengthening rupiah and comes on the same day as a much-anticipated interest rate decision by the United States’ Federal Reserve (Fed).
Following the central bank’s monthly policy meeting in Jakarta on Wednesday, BI Governor Perry Warjiyo announced a reduction in the BI Rate to 6 percent to safeguard “economic growth”, which he projected at 5.1 percent for this year.
This cut was the first the country has seen since BI embarked in August 2022 on a rate-hiking cycle that lifted the domestic benchmark for borrowing costs by a total of 250 bps to a high of 6.25 percent in April this year.
At the previous board of governors meeting, held last month, Perry had projected that the room for a cut would only open in the fourth quarter of this year.
On Wednesday, however, Perry emphasized that “the time is right” for a cut, given Indonesia’s economic outlook for the next two years based on “global and domestic prospects”.
The governor cited several factors behind the decision, including a restrained inflation outlook and a stable rupiah exchange rate against the US dollar, while also pointing to monetary policy signals from the Fed regarding the federal funds rate (FFR).
