Economist: Low Inflation In November Opens BI Opportunities To Cut Benchmark Interest Rates

Illustration. (Photo: Doc. Antara)

JAKARTA - Bank Permata economist Josua Pardede assesses that the low inflation rate opens up opportunities for Bank Indonesia (BI) to cut the benchmark interest rate or BI-Rate.

Based on a report from the Central Statistics Agency (BPS), inflation was recorded at 1.55 percent year-on-year (yoy) in November 2024, sloping from October's achievement of 1.71 percent yoy. Josua predicts the inflation rate will be in the range of 1.7-2.0 percent by the end of the year, lower than the 2023 achievement of 2.81 percent.

"This lower inflationary completion can provide space for Bank Indonesia to consider the decline in BI-Rate, especially if it is aligned with the potential reduction in Fed interest rates," said Josua in a statement in Jakarta, quoted from Antara, Tuesday, December 3.

He believes that the inflation rate throughout 2024 will remain within the BI target range, which is 1.5-3.5 percent. The impact of global energy price pressure due to geopolitical tensions in the Middle East and European regions is estimated to be offset by weakening global demand.

Meanwhile, by the end of the year, inflation's push is expected to stem from increased seasonal demand related to the Christmas and New Year holidays.

As for next year, Josua estimates that inflation will increase in line with several government policy measures, such as plans to increase excise on packaged sweetened drinks (MBDK) and value added tax rates (VAT) to 12 percent.

On the other hand, inflation next year will look to increase along with this year's inflation base which is not too high. Increased consumer demand can also lead to more moderate inflation.

"Although it is estimated that it will increase, inflation is projected to remain under control, reaching around 3.12 percent by the end of 2025, in the range of Bank Indonesia's target of 1.5-3.5 percent," said Josua.

Although annual inflation is slowing down, monthly inflation recorded an increase of 0.30 percent (month-to-month/mtm) from the previous 0.08 percent mtm in October, economist at Paramadina University Wijayanto Samirin assessed that the monthly inflation performance is a signal of improving people's purchasing power.

Meanwhile, inflation for the calendar year was recorded at 1.12 percent (year-to-date/ytd).

The BI-Rate position last remained at the level of 6 percent, following the decision of the BI Board of Governors' Meeting (RDG) in November 2024.