Bank Indonesia Keeps Interest Rates Steady Amid Economic Changes
JAKARTA – Indonesia’s central bank decided to keep interest rates unchanged on Wednesday, a move that surprised few analysts. The bank aims to maintain stability for the rupiah and control inflation within its target range.
Bank Indonesia (BI) held the benchmark rate at 6.00 percent, consistent with the predictions of 25 out of 34 economists surveyed by Reuters. The central bank also kept other key rates steady: the overnight deposit facility at 5.25 percent and the lending facility at 6.75 percent.
In September, BI reduced rates by 25 basis points, aligning with the onset of rate cuts from the US Federal Reserve. The bank has indicated it will continue to evaluate the possibility of further rate cuts, especially as global market volatility subsides.
Since early October, the rupiah has shown signs of weakening but still remains above the lower levels seen earlier in 2024. In explaining the decision, BI Governor Perry Warjiyo pointed out that global economic conditions have shifted since the bank’s last review. He cited increasing risks related to the economy, geopolitics, and trade.
Warjiyo also noted that US policies under President-elect Donald Trump might focus more internally, and an expansive fiscal policy could hinder the Federal Reserve’s ability to lower rates, subsequently impacting global inflation.
The recent decline of the rupiah, according to Warjiyo, can be attributed to a stronger US dollar and capital moving towards dollar-denominated assets following the US election. However, he reassured that this situation is manageable, and the bank is prepared to use all available monetary tools to support the currency.
On the domestic front, Indonesia’s economy saw an annual growth rate of 4.95 percent in the third quarter. Although this growth is solid, it falls short of the ambitious 8 percent target set by President Prabowo Subianto. Inflation has remained within BI’s target range since mid-2022, and Warjiyo expects this trend to continue. In October, annual inflation was recorded at 1.71 percent.
