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Room for interest rate cuts seen to narrow in 2025 thanks to Trump
Bank Indonesia (BI) Governor Perry Warjiyo has signaled that the central bank will have less room for continued monetary policy easing next year as pressure mounts on the rupiah as a result of the more inward-looking policy expected from the administration of US president-elect Donald Trump.
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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. (Antara/Akbar Nugroho Gumay)
B
ank Indonesia (BI) Governor Perry Warjiyo has signaled that the central bank will have less room for continued monetary policy easing next year as pressure mounts on the rupiah as a result of the more inward-looking policy expected from the administration of United States president-elect Donald Trump.
“Global turmoil has pushed us to focus on rupiah stabilization,” Perry said in his keynote speech at the BI Annual Meeting (PTBI) in Jakarta on Friday, adding that BI’s policy rate would be adjusted in accordance with “global and domestic economic dynamics”.
He added that BI was continuing to look for room to cut its benchmark rates as inflation was expected to remain steady in the next two years and as lower interest rates were needed to drive economic growth.
Aside from changes to the BI Rate, the central bank’s toolbox to protect the rupiah includes foreign exchange market intervention and so-called macroprudential incentives, which are offered by BI to banks extending loans to priority sectors and small businesses in the form of lower reserve requirements.
Perry said Trump’s return to office would “bring big changes to the world's geopolitical and economic landscape” that would dim the world’s economy in the next two years, and he indicated how it pressed the central bank to act accordingly.
Speaking at the same event, President Prabowo Subianto said geopolitics was “in a rather sensitive situation […] full of uncertainty, necessitating us to remain alert, always careful. But I am grateful that the overall situation in the Republic of Indonesia remains calm and conducive”.
Perry mentioned that high import tariffs, trade wars, geopolitical tensions, supply chain disruptions and economic and financial fragmentation were adding to global uncertainty and would play out in various ways, such as slower and diverging economic growth, where the US would see better days while China and Europe would experience weakness.
