BI Is Predicted To Keep The BI Rate At 6.25 Percent

Rupiah (photo: dock. Antara)

JAKARTA - Head of Bank Permata economist Josua Pardede said Bank Indonesia (BI) is expected to again maintain BI-rate at the level of 6.25 percent at the Board of Governors Meeting in August 2024.

"BI is expected to again maintain BI-rate at the level of 6.25 percent at the August 2024 Board of Governors Meeting," he explained to VOI, Wednesday, August 21.

According to Josua, although global financial market conditions have improved due to risk-on sentiment driven by the increasing potential decline in Fed interest rates and stable domestic inflation, which opens up space for a BI-rate decline.

"We believe that BI will still consider global uncertainty, especially regarding geopolitical conditions and the projected global economic growth prospects to slow down," he said.

Josua conveyed that global uncertainty regarding geopolitical tensions and the prospect of global economic growth are still worrying, thus posing a risk to the movement of the Rupiah even though Indonesia's domestic economic condition is quite strong.

Josua explained that this global economic slowdown could put pressure on the external sector of Indonesia, thereby increasing the risk of widening the current account deficit amid the trend of fiscal deficit expansion.

Therefore, Josua estimates that BI will not rush into making a decision to lower interest rates.

According to Josua, BI is expected to start lowering the BI-rate after the Fed definitively lowers the Federal Funds Rate (FFR).

"The current Fundamental of the Indonesian economy is quite solid and still prospective," he explained.

Josua explained that most of the pressure came from externally, mainly related to geopolitical tensions, global policy interest rates, and global economic conditions. If external pressure begins to subside, we see sufficient space for BI to lower interest rates.

"In addition to considering the easing of its monetary policy, BI is expected to consider implementing the exit strategy of SRBI policies in the short term," he said.

Josua estimates that the space for BI-rate pruning will be more open in the second half of 2024 if external conditions continue to improve and support risk-on sentiment, so as to support the stability of the Rupiah exchange rate.

"If all conditions prove supportive, there is a possibility that BI will shift its monetary policy focus from stability to growth," he concluded.