Economists Predict BI Will Maintain Interest Rate at 6.25 Percent

JAKARTA - Bank Indonesia (BI) is expected to maintain the BI rate at 6.25 percent at the Board of Governors Meeting (RDG) on June 16-17, 2024.

Bank Permata Chief Economist Josua Pardede said BI will maintain its interest rate by considering ongoing global and domestic uncertainty, even though economic indicators in the United States (US) are showing weakness.

"Domestically, Indonesia's inflation rate tends to be under control due to increased food supplies after the main harvest season," he said in a written statement, Tuesday, July 16.

Josua said that Indonesia's trade balance also still recorded a surplus, although it narrowed, thus driving the current account deficit to continue, although it is still at a controlled level.

These factors contribute to economic stability.

Even so, Josua said that several risks will still arise from the increasing uncertainty of fiscal sustainability related to differences of opinion regarding public debt and the fiscal deficit.

According to Josua, this will raise concerns about a twin deficit, with the current account deficit and fiscal deficit widening.

"These issues trigger risk-off sentiment, which has the potential to limit capital inflows and affect the stability of the rupiah," he said.

He estimated that the direction of BI's future monetary policy related to the BI rate would depend heavily on developments in global economic and political conditions, especially in the US.

Although the market is currently anticipating two Fed Funds Rate (FFR) cuts this year, starting in September, Josua remains of the view that the Fed will only cut the FFR once, in the fourth quarter of 2024.

Josua said that the Fed is expected to be data dependent, and also considering broader aspects of the US economy, including the implications of domestic political dynamics amid this year's general election.

"We still see that the opportunity for a BI-rate cut will emerge when the Fed starts cutting the FFR," he said.