BI Is Projected To Cut Interest Rates To 75 Basis Points In 2024

JAKARTA - PT Mandiri Sekuritas projects that the BI interest rate cut will continue. It is estimated that the total BI interest rate cut is 150 basis points, which will bring the interest rate terminal to 4.75 percent, with a total of 75 basis points likely to be carried out in 2024.

Meanwhile, this will bring BI's real interest rates closer to a long-term average of around 1.7 percent, down from 3.4 percent today.

As is known, the central bank of the United States (US), The Federal Reserve (The Fed), and Bank Indonesia (BI) simultaneously lowered their benchmark interest rates. The Fed cut the benchmark interest rate by 50 basis points (bps) to 4.75 percent-5.0 percent. This cut is greater than market expectations which only expect a 25 bps decline.

In line with the Fed's policy, Bank Indonesia (BI) also made a similar decision by lowering the BI Rate benchmark interest rate from 6.25 percent to 6 percent. In addition, the Deposit Facility interest rate was cut to 5.25 percent, and the Lending Facility interest rate was 6.75 percent.

Chief of Economist Mandiri Sekuritas, Rangga Cipta said the projection was based on the results of the BI RDG which estimates the Fed's opportunity to lower interest rates by 75 bps in 2024, this is higher than the previous month's projection of 50 bps.

In addition, Rangga said that Bank Indonesia also considered that the decline in the BI tribe was faster than the Fed, driven by certainty related to cutting interest rates in the US, strengthening Rupiah, low inflation, and the need to support the economy, fiscal financing, and the banking sector.

On the other hand, Rangga added that BI also estimates credit growth will reach an upper limit of the target of 10-12 percent for 2024, with a significant contribution from the tertiary and industrial sectors that create jobs.

"There is no indication from BI to reduce GWM, but they revealed that the 'GWM discount' of 4 percent has so far increased liquidity by a total of IDR256tn or 3.4 percent of third party funds. This indicates that GWM is effective by 5.6 percent compared to 9 percent in the headline. BI projects GDP growth of 5.1 percent for 2024 and sees a potential increase towards 5.2 percent, even higher for 2025, driven by more aggressive fiscal spending, "said Rangga in his statement, Wednesday, September 25.

Meanwhile, Head of Equity Research and Strategy Mandiri Sekuritas, Adrian Joezer said, a 50 bps reduction in interest rates by the Fed opened up space for further BI benchmark interest rates.

According to Adrian, there is a breath of fresh air for cutting BI interest rates with the easing of monetary and fiscal policies, strengthening the Rupiah exchange rate, accompanied by attractive stock market valuations.

"We see a higher chance for the Composite Stock Price Index (JCI) to reach our bull-case scenario at 8,000 by the end of this year," he said.

Adrian said that there are sectors that are quite sensitive to lowering interest rates and strengthening the Rupiah exchange rate such as finance, consumer staples, and property, as well as small-mid caps stocks remain options.

Meanwhile, Mandiri's Head of Fixed Income Research Sekuritas Handy Yunianto said that lower interest rates would have a positive impact on the bond market. When interest rates decline, bond instruments will be increasingly in demand because investors can get higher returns than interest rates.

"The fairly high bond yield level in Indonesia is in demand not only by local investors, but also foreigners. This is also supported by the potential for good economic growth, low inflation, maintained debt levels, and relatively stable political conditions," he explained.