BI Creates Several Scenarios for Fed Interest Rate Cuts

SAMOSIR - Bank Indonesia (BI) predicts that the Federal Reserve (the Fed) will only reduce interest rates in December 2024. Director of the BI Economic and Monetary Policy Department, Juli Budi Winantya, said that BI has several predicted scenarios for reducing the Fed's interest rate, one of which is in December 2024 interest rates will decrease once.

"We have the assumption that the Fed Funds Rate (FFR) will most likely decrease once in 2024, in the fourth quarter or December," said Juli in a discussion on Recent Economic Developments and BI's Policy Mix Response, in Samosir Regency, North Sumatra, Sunday, April 28.

Juli said that there are several other scenarios, namely potential risk, assuming that the FFR will not decrease in 2024 but will decrease by 50 bps in 2025. Meanwhile for the tail risk scenario, the Fed's interest rate will not decrease in 2024, but will decrease by 25 bps in 2025.

In the midst of these conditions and global uncertainty, Bank Indonesia is optimistic that Indonesia's economic growth in the first and second quarters of 2024 is expected to be higher compared to the fourth quarter of 2023. This optimism is in line with strong domestic demand from household consumption throughout Ramadan and Eid al-Fitr 1445 Hijriah.

"We hope for a boost from domestic demand. Consumption is still strong, even though historically it has been relatively low, but it is starting to improve," he said.

Juli said that building investment itself was higher, supported by the continued demand for National Strategic Projects (PSN) in a number of regions and the development of private property as a positive impact of government incentives which would push the economy forward.

"Meanwhile, we estimate that building investment will grow better so that it will push the economy forward," he said.

For information, in 2024, BI projects that national economic growth will be in the range of 4.7 to 5.5 percent.

Juli said that even though the current conditions are amidst global uncertainty, due to the escalation of geopolitical tensions in the Middle East, Indonesia's economy is still relatively strong.

According to July, many global investors are moving their asset portfolios to safer places, especially US dollars and gold.

"This causes capital to flee and the weakening of exchange rates in developing countries to become greater," he said.

As is known, Bank Indonesia (BI) decided to increase the benchmark interest rate or BI Rate by 25 basis points to 6.25 percent.

Apart from that, BI also increased the deposit facility interest rate and lending facility interest rate by 25 basis points to 5.50 percent and 7.0 percent respectively.