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BI surprises markets with rate cut to boost domestic demand

BI Governor Perry Warjiyo says the central bank's unexpected decision to cut rates this month was driven in part by reduced uncertainty surrounding the US policies of the incoming Trump administration.

Aditya Hadi (The Jakarta Post)
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Jakarta
Wed, January 15, 2025

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BI surprises markets with rate cut to boost domestic demand Bank Indonesia (BI) Governor Perry Warjiyo arrives at a media briefing on Jan. 19, 2023, at the central bank’s headquarters in downtown Jakarta. (Reuters/Ajeng Dinar Ulfiana)
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B

ank Indonesia (BI) has cut its key interest rate by 25 basis points (bps) to 5.75 percent, citing a more “measurable impact” from Donald Trump’s reelection as United States president and the need to bolster a sluggish domestic economy.

The rate cut defied the expectations of analysts, including at Moody’s Analytics, which predicted that the central bank would keep its benchmark rate at 6 percent.

The decision marks the second time BI has cut its key rate in a bid to bring borrowing costs back down, after a period of monetary policy tightening that began in August 2022 lifted the domestic benchmark by a total of 250 bps to peak at 6.25 percent in April 2024.

The central bank shifted gears in September last year by cutting the rate by 25 bps to 6 percent.

Following its monthly policy meeting on Wednesday in Jakarta, BI Governor Perry Warjiyo said the decision aligned with an expectation that inflation would remain low, within the target range of 1.5 to 3.5 percent.

Following the surprise cut, the rupiah dropped to its lowest level against the US dollar since July last year, trading at around Rp 16,350 per dollar in the late afternoon on Wednesday.

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Perry said the currency’s movement remained consistent with its fundamental value.

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