BI Boss Reveals 5 Reasons For The 6 Percent BI-Rate Reduction

BI Governor Perry Warjiyo (Photo: dock. Antara)

JAKARTA - Bank Indonesia (BI) Governor Perry Warjiyo revealed that there are five reasons why BI lowered the benchmark interest rate or BI Rate to 6 percent faster than the Federal Reserve or The Fed.

Meanwhile, based on the Meeting of the Board of Governors (RDG) of Bank Indonesia on September 17, 2024, BI decided to cut interest rates by 25 basis points to 6 percent. This is the first interest rate reduction since August 2022.

"The meeting of the Board of Governors of Bank Indonesia on September 17 and 18, 2024 decided to reduce the BI Rate by 25 basis points to 6 percent," Perry said at a press conference on the results of the RDG BI, Wednesday, September 18.

Perry conveyed that the first reason is that the direction of lowering the Fed interest rate is clearer, such as the time and amount so that it will have an impact on macroeconomic conditions, including inflation and economic growth.

In addition, Perry believes that the Fed will lower interest rates three times this year, namely in September, November, and December 2024 and will four times in 2025 each at 25 bps.

The second reason is the strengthened and stable rupiah exchange rate where the rupiah was recorded to have strengthened 0.87 percent year-on-year or year to date (ytd) after being corrected in June 2024.

According to Perry, various policies such as holding interest rates, market interventions, purchasing Government Securities (SBN) and issuing Rupiah Bank Indonesia Securities (SRBI) have succeeded in attracting foreign capital flows to enter so as to strengthen the rupiah exchange rate.

"In terms of monetary instruments so far with a fixed BI rate, triple intervention in spots, DNDF and purchase of SBN from the secondary market, and the attractive SRBI inflow shows appreciation of the rupiah exchange rate with this meaning that the second factor is the right," he explained.

Perry conveyed the third reason, namely controlled inflation in the range of 2.5 percent plus minus 1 percent in 2024 and 2025. Meanwhile, throughout 2024, inflation was recorded to move in the range of 2.12 percent - 3.05 percent on an annual basis or year on year (yoy).

The next reason is that BI also supports economic growth, especially in terms of retail and micro, small and medium enterprises (MSMEs) through financing loans, through incentives for macroprudential liquidity policies (KLM).

In addition to macroprudentials, Perry said that he also encouraged economic growth through digitizing payment systems with Qris, merchants and then government financial transactions.

"Policies now, macroprudentials, payment systems, monetary systems have indeed started (showing impetus) for economic growth. Previously, monetary was more pro-stability, now there is more balance between stability and growth. Meanwhile, macroprudentials and payment systems have been pro-growth from the start," said Perry.

Perry conveyed that the last reason is to encourage the distribution of financing loans to banks, so that they can support fiscals where when the BI Rate drops will make SBN yields or yields decrease, thus supporting fiscal policies.

"So in addition to liquidity incentives, we hope that the reduction in interest rates will also be welcomed by banks. The more active they are in distributing credit, not only those given KLM incentives but also others, so it is hoped that deposit interest rates will also decrease," he said.