Bank Indonesia Maintains Benchmark Interest Rate at 6.00% Amid Stable Economic Growth and Fed Projections

Bank Indonesia (BI) has decided to keep its benchmark interest rate unchanged at 6.00% [bf5bc59b]. This decision aligns with BI's goal of supporting the stability of the rupiah. Governor Perry Warjiyo announced that BI had maintained its forecast for the U.S. Federal Reserve to loosen monetary policy only in the second half of the year. The central bank believes that economic growth in the U.S. remains solid, leading to its expectation that the Fed will be patient about cutting rates [bf5bc59b].

BI's decision to maintain the key rate comes as inflation in October was within the central bank's target range, suggesting that price pressures are not a major concern. Economists have varying views on the key rate, with some predicting a cut by mid-2024. Bank Indonesia will closely monitor data and the actions of the U.S. Federal Reserve to determine its next move [680f9a7d] [a2815001] [bf5bc59b].

BI Governor Perry Warjiyo acknowledged that some market participants had recently speculated on a rate cut taking place as early as June. However, he emphasized that BI's forecast is based on the belief that the Fed will be patient in implementing any rate cuts. The central bank did not revise its forecast for full-year consumer price index (CPI) growth of around 3 percent, despite a seasonal spike in volatile food inflation leading up to Ramadan. Perry noted that inflation is the main factor driving BI's rate decisions [bf5bc59b].

Bank Indonesia aims to keep the rupiah stable and expects it to appreciate further. The rupiah has experienced volatility due to investors scaling back their bets for an early Federal Reserve rate cut. However, domestic inflation remains within Bank Indonesia's target range, and the core gauge is at a two-year low. This suggests that price pressures are not a major concern at the moment [a2815001].

Bank Indonesia may rely on market tools to attract foreign funds and ensure currency stability, especially considering the potential effects of the transition of power in October and the global economic slowdown on exports. The central bank's macroprudential policy remains loose to support lending and economic growth. In fact, bank lending grew at the fastest pace in over a year in January. Bank Indonesia retains its growth estimate for 2024 at 4.7%-5.5% [a2815001].

Bank Indonesia Governor Perry Warjiyo ensures rupiah stability is maintained in anticipation of the impact of the uncertainty of the United States (US) policy rate cut or FFR and escalating geopolitical tensions in the Middle East. BI manages market-friendly foreign portfolio flows and supports the external resilience of the Indonesian economy. The Indonesian economy remains strong and is supported by prudent and closely coordinated monetary and fiscal policies. Bank Indonesia's strong commitment to exchange rate stabilization is an important part of strengthening external resilience [c92d5e4e].