Bank Mandiri Economist: BI Will Maintain Reference Interest Rates At Level 6 Percent

JAKARTA - Bank Mandiri's Head of Economist Andry Asmoro estimates that Bank Indonesia (BI) will maintain its benchmark interest rate at the level of six percent at the Bank Indonesia (RDG) Board of Governors Meeting (BI) on December 20-21, 2023.

"We see the benchmark interest rate is peak (achieving peak) at six percent," Andry said at a press conference in Jakarta, quoted from Antara, Wednesday, December 20.

This is in line with Indonesia's economic growth which remains resilient despite facing global uncertainty in 2023 and indications of a decline in the United States (US) interest rate in 2024.

Bank Mandiri estimates that by 2024, BI will cut its benchmark interest rate by 50 basis points in the second half of 2024 to 5.50 percent.

The opportunity to reduce the BI benchmark interest rate is estimated to be in line with the decline in the US benchmark interest rate.

The direction of the interest rate policy will affect the volatility and flow of foreign capital to Indonesia and other emerging markets. Low interest rates became a stimulus for foreign capital flows into Indonesia.

Andry said almost all estimates indicated that by 2024 there would be a cut in the US benchmark interest rate.

"If the Fed yesterday saw clear guidance, there would be a 75-base cut in 2024 and continue in 2025," he said.

The decline in global benchmark interest rates will bring benefits to emerging markets, including Indonesia.

According to Andry, with the relatively sloping interest rate direction, there will be a potential lower loan fee, fixed income will have a positive impact and higher credit demand.

"If the interest rate direction is relatively lower, the potential for demand for loan (loan request) for the banking sector, then the loan demand will begin to recover relatively faster in the second half of 2024," he said.

Previously, the US Central Bank or The Fed announced to maintain policy interest rates at 5.25 percent to 5.50 percent after the Federal Open Market Committee (FOMC) meeting in December 2023.

The US FOMC estimates the Fed will lower policy interest rates by 75 basis points (bps) by 2024.