Bank Indonesia Predicted to Hold Interest Rate at 6.25 Percent

Governor of Bank Indonesia (BI) Perry Warjiyo. (Photo: Doc. ANTARA)

JAKARTA - Bank Indonesia (BI) is expected to maintain its benchmark interest rate or BI Rate at 6.25 percent, at the Board of Governors Meeting (RDG) on September 17-18, 2024.

Economist at the Institute for Economic and Community Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI), Teuku Riefky, said that Indonesia's inflation in August 2024 decreased slightly to 2.12 percent year-on-year (yoy) compared to 2.13 percent in July 2024.

According to Riefky, this decrease was due to falling food prices.

However, core inflation rose to 2.02 percent (yoy), driven by rising prices of gold jewelry, coffee, and education costs.

"The rupiah strengthened to IDR 15,395 per US dollar in mid-September, supported by strong capital inflows, while foreign exchange reserves reached a record 150.2 billion US dollars," said Riefky in a macroeconomic analyst report, Wednesday, September 18.

Riefky assessed that the condition reflects a stable economy, despite expectations of a Fed interest rate cut in September 2024.

However, Riefky said BI needs to be careful in lowering the benchmark interest rate, because this step is important to maintain exchange rate stability and prevent currency volatility and manage risks associated with sudden capital outflows.

According to Riefky, taking this into consideration, BI's interest rate cut is not too urgent to be carried out this month.

In addition, Riefky said that postponing the cut in the benchmark interest rate also has the potential to benefit BI's position with BI's wider room to maneuver in carrying out monetary easing in the remainder of this year if needed.

"We are of the view that BI needs to hold its benchmark interest rate at 6.25 percent at the September Board of Governors Meeting," Riefky said.